City Property Investment vs Regional Properties – Sam Saggers

City Property Investment vs Regional Properties – Sam Saggers

 

Sam Saggers from Positive Real Estate joins us today as well. Sam talks about his portfolio and why he favours city property investment over regional properties.

 

Transcript:

Kevin:  In the latest edition of Australian Property Investor magazine is an article headed up “The Great Debate – Cities versus Regionals”. It is a great debate. It goes on and on and on. Sam Saggers has got some very positive views there from Positive Real Estate. Sam’s got some positive views on this issue.

Good day, Sam.

Sam: Good day, Kevin. Thanks for having me.

Kevin:  Good to be talking to you again, mate. Now, you’re a great believer in the cities. Why is that? What are the things that drive you to believe that?

Sam:  Well, cities obviously have an inherent marketplace. It’s very important to understand that where local people are living, where there’s standard owner-occupier trade, it’s very important for investors to leverage off that.

Particularly in bigger communities, capital cities, there’s always a level of confidence driven by the fact that people actually just have to simply live there because they go to work in that city and they’re building a life in that city. Their kids to go the school in the local precinct.

Towns can be very fickle, and particularly smaller environments, say less than 10,000 people, very dangerous for property investors. I always say investors buy real estate in cities and speculators buy real estate in small towns, isolated areas.

Kevin:  Yes, there are possibly some exceptions to that, and we might talk about that in just a moment. One of the things that I think you were just hinting at there is also that in the cities, you have a diversification of trade. It’s not reliant just on one or two industries, Sam. Is that a big criteria for you, as well?

Sam:  It’s absolutely huge. Right now, for example, Melbourne’s going through a manufacturing downturn, but if you went to Melbourne, you wouldn’t even know it. You wouldn’t feel it. Actually, the counter is happening in the real estate market. Particularly the housing market in Melbourne is booming along quite nicely.

So having diverse economics is so paramount to property investors. There have so many cases of one-economic towns where there are literally only one or two employers where the environment changes, something happens to that particular employer, and that town really suffers, and so does the house prices and property values.

I think it’s also prudent to understand that where the population is growing, they’ll follow the jobs, they’ll follow that diversity of work. So you’ll see that cities – and big towns, which are really cities – will do very well.

Kevin:  How important, too, is the consideration about the growth of infrastructure? You go to a regional town, and they’ll complain, quite often, about how much infrastructure is being built in the capital cities and the regions that are almost forgotten. But that is something that should also be borne in mind?

Sam:  Absolutely. Australia has a business plan. By 2051, which sounds like a long time away – and it is – there are going to be over 40 million people living in Australia, and the Australian government and the state governments have a real plan to push the density into our five big capital cities around the country.

You’ll see huge growth rates in Brisbane, in Melbourne, in Sydney, and particularly in Perth because that’s where the government wants people to go and live. It’s a tell-tale sign to me: invest where the government is suggesting people will live, and you’ll do well, surely, over time. So infrastructure is going to go in the big cities because that’s where the population is headed.

Kevin:  Now of course, it’s not a black-and-white issue for you, is it? I know in your portfolio, you do have some regional investments. What are the criteria that you look for if you were to invest in the regions?

Sam:  Yes, I do have some regional investments. For me, for a start, invest in a big town. The argument is, for example, Mackay, right now is struggling along, but it is a big regional city, it is a big regional town. If you go an hour out of Mackay, or two hours out of Mackay, to Moranbah and Dysart, we’ve seen values fall back 75%. So it’s really interesting: the economics and the stability of the town is so important.

At least, if you’re going to go regional, firstly, you should be making sure you’re getting a very good rental return – so the reason for going regional – and then over and above that, make sure that the population base of that town is quite significant. I’d be looking at a minimum of 50,000 people, plus.

Kevin:  Sam, good catching up with you, mate. Sam Saggers, of course, from Positive Real Estate. You can read all about Sam and his thoughts on this issue in the latest edition of Australian Property Investor magazine, which is out right now.

Sam, thanks for your time.

Sam:  Thanks very much, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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