28 Aug Be careful what you include in your portfolio – Anna Porter
This week a timely warning from Anna Porter at suburbanite.com.au to be very cautious of filling your portfolio with regional properties, or buying in tourism hubs if you are looking to buy a growth property. These markets are volatile she says.
Kevin: You may recall recently I talked about some of the benefits of investing or looking as an investor at some of the regional markets around Australia. We’ve also sounded a note of caution about some of the tourism hubs, too. I’m going to pick up on that conversation and talk to Anna Porter. Anna is from Suburbanite.com.au.
Good day, Anna. Nice to have you on the show again.
Anna: It’s my pleasure to be here.
Kevin: You’re a little bit concerned about some of the regional areas and particularly tourism hubs. Tell me why.
Anna: Yes, certainly. We regularly research the 5-, 10-year, and beyond performance of markets. We often have people come to us after a regional growth property, and we say, look, regional investing is definitely one way to do it if you’re chasing yields or income properties, but having a growth property in a regional area is a little counterintuitive.
When we look at the stats, typically we see regional hubs over a 10-year cycle perform at about more like 4% per annum growth whereas your more metropolitan or satellite city areas tend to perform more at 6% to 8% per annum growth. To put that into real numbers, the difference between 2% per annum over 10 years if you buy a $450,000 property is $165,000 in capital growth. That’s a lot of money.
Kevin: Doesn’t it depend on some of these regional areas and what the drivers are, like if there’s good long-term industry, then it’s going to be okay?
Anna: There are some regional areas that have performed well, but there’s always risk. If you’re going into a regional area and you do get good performance, it’s often from being quite speculative, so you have to be a risk taker.
Take, for example, some areas like recently we had a new client come to us and they had just bought some properties in Lismore, which is a university town. They came to us and they had some problems with one long-term vacancy in the property, and also they had had problems with growth. The property hadn’t gone up much at all in about five years.
One of the factors that we identified early on is they were buying because they felt there was stability with the university being there, but we’ve actually been telling people for years to be careful of that because universities are putting on their own student accommodation, which is pulling people out of the private rental market.
There are these volatility factors. We like to believe investing is like a chair; you have to have four legs, and if one of those legs breaks, you’re still standing upright. If you go into regional towns or tourism hubs, you really only have one or two legs and you can very easily fall over.
Kevin: Yes, we saw that demonstrated quite sadly with some of the mining towns, didn’t we? Some of the mining speculation, then the mines stopped leasing private properties and started building their own, and of course, the markets crashed.
Anna: Yes. We’ve never gone into mining towns because our barrier to entry for investing is a single industry town – whether it’s a university, whether it be mining – and we’ve actually now had some of our clients bring properties that they already had in their portfolio to us and say, “What should we do?”
One of those locations is Dalby. Unfortunately other investment firms have recommended this to them in years gone by, and at the moment there are currently 668 properties for sale – houses – in Dalby, all quite similar, all of them are going backwards in value and these clients when we do that review have made a capital loss in the last five or six years.
In real terms, that’s someone’s livelihood. That’s someone’s life savings. That’s devastating.
Kevin: Let’s talk about ice cream lickers: people who go to some of these tourism hubs – Gold Coast, Sunshine Coast – lick the ice creams, they’re on holidays, “What a beautiful place. I think I’ll buy an investment property here.” It’s a cautionary note, isn’t it?
Anna: It certainly is. While tourism hubs are a great place to visit and spend a holiday, people often get drawn in by that. Some of the volatility we see in those markets is that there’s not long-term sustainable employment. Tourism does bring in employment, but it’s often quite finite in time, and often the biggest factor that sits in those areas is the high unemployment rates that we typically see, which again creates that speculative market.
We call them more “boom and bust” markets. In some tourism hubs – for example, Gold Coast with the Games and that sort of thing – you can see this little boom come through, but you can see it bust just as quickly, just as heavily, at the other end of that.
Kevin: Would you be investing in the Gold Coast right now?
Anna: No, we’re not. We’re actively avoiding that area.
Kevin: What about some of the areas that surround it that might benefit from the Games or even the long-term measures. Would you look at Brisbane as an example?
Anna: Yes, we certainly are investing in Brisbane at the moment. And when we say Brisbane, we’re not talking Ipswich. We have a lot of our clients who are from New South Wales or Victoria, and they say, “Oh, I’m investing in Brisbane; I’m buying in Ipswich or Toowoomba.” And it’s not quite the same drivers there.
When we talk about Brisbane, we’re talking within 20 minutes of the CBD. We’re not in flood zones. You have to be careful of that. You have to understand there are a lot of flood zones through that market, and your first insurance premium could be something you can’t even jump over if you’re in a flood zone. You also have to be mindful that the unit market is very oversupplied there.
While Brisbane will have a benefit, it’s not just what’s happening in the tourism space that’s going to benefit Brisbane. There is a lot of employment being driven through the area. A lot of infrastructure has gone in over the past five and six years. They’re the things that also create that longevity and sustainability and create more legs for the chair.
Kevin: Great talking to you, Anna. I’ll leave you with your four legs, but we’ll talk to you again real soon on the show.
Anna: Fantastic. Thanks for your time.