20 Jan Don’t believe everything you read – Simon Pressley
You’d be excused for thinking that we’re in a dire situation with our property market if you believe everything you read. But Simon Pressley says – ‘hold on a minute’ as he predicts that we could be in for some boom conditions. Five capital cities, and a number of major regional locations, he says, are on track for some solid property price growth in 2019. He tells us where and when.
Kevin: Well, you’d probably be excused for thinking that we’re in a dire situation with our property, when we continually see headlines as we’ve seen recently about the worst performing market since the GFC, and so on.
Kevin: However, we’ll try and get a bit of balance into this conversation. Joining with me to do that is Simon Pressley. He’s from Propertyology. Simon, thanks again for your time, and-
Simon: My pleasure.
Kevin: Yeah, welcome to the show. You’ve predicted, in a recent release, that we could be in for some boom conditions. Five capital cities, and a number of major regional locations on track for some solid property price growth in 2019. There’d have to be some riders with this, though, wouldn’t there?
Simon: There are. Well, one major rider, and that is … certainly …. 2019 there will be booms throughout Australia. They won’t be in any of our capital cities, but there will be booms in parts of regional Australia, regardless.
Simon: However, some of the capital cities have underlying fundamentals that are conducive of a boom in future years, with the rider being, credit needs to return to being sensible again.
Kevin: This is to do with a lot of the macroprudential controls that we’ve seen applied to the market, and what’s that done to confidence?
Simon: eah, absolutely. I mean, look, I don’t think there’s an analyst anywhere in Australia, including Propertyology, Kevin, that this time last year said Sydney would decline by 10%, and Melbourne would decline by seven. None of us anticipated that. I think a majority of us said that those two markets were entering a downturn, but probably expected downturn to mean zero growth, or maybe they’ll lose 1% or 2%.
Simon: We believe the gross overreaction by APRA in 2018 directly contributed to between 5% and 7% off property prices nationally. So the 10% decline that Sydney saw in 2018 probably would have been around 3%, if not for it being hard for people to borrow money. The 10% growth that Hobart had would have been in the mid- to high teens, if not for the APRA …
Simon: Because credit affects everybody. We all want to buy, whether it’s a family home, or first home buyer or investor or whatever, but we need funding to be able to do that.
Kevin: Yeah. It’s a bit like having a sledgehammer to drive in a pin.
Kevin: And you can see what happens, with those sorts of controls. You’ve done an interesting exercise, just to keep this in perspective now, where you’ve looked at three different scenarios and the possible impact on median prices in 2019. Just walk me through that one.
Simon: Yeah. So why we’ve done this, and it’s not something that we do every year, the three different scenarios, because the availability of credit has such an impact, and it affects every market. Now we fully expect that sanity will prevail. But no one can tell us when will sanity prevail, and when a responsible adult wants to borrow money, that they’ll be able to get it, as well you should be able to do.
Simon: That’s why we’ve done this, I guess, the three different scenarios. If there’s no change? If 2019, availability of credit is exactly as it was in 2018, we expect Sydney prices to decline by 7 and maybe up to another 10% this year. Same sort of declines in Darwin. That’s got problems of its own, Darwin, it’s officially in a recession, but we expect cities like Adelaide, Brisbane, Canberra, Perth, all to show growth of somewhere between 1% and 5%. And we expect Hobart will be, sort of, 4% to 7%.
Simon: Now these are on the proviso there’s no change to credit policy. If, however, we get some relaxation and return to a sensible credit policy in the first quarter of 2019, you’d probably add a couple of percent to each of these cities. Maybe 2-3% extra growth in 2019, and if it returns to sensible credit in the second quarter of 2019, the price growth will be somewhere between Scenario One and Scenario Two.
Simon: So, no one can tell us when sensible credit will return. But what we do know is, the RBA, the Federal Treasurer and some of Australia’s biggest economists, all over the last month have all publicly come out and said APRA have gone too far. It’s not just a property story. It’s an economic story. Economies require money to filter through the system, and that filter comes from what we earn and what we borrow.
Kevin: What does a sensible scenario look like?
Simon: A sensible scenario is if a responsible adult, who has a reliable income, and a history of paying their financial commitments on or before they’re due, and a good purpose for the loan. They should be approved. That’s what credit’s for. Whether we’re talking about a big infrastructure project or a publicly-listed company or government, right down to a teenager buying their first car.
Simon: The biggest decisions that lives and … I’m sorry, individuals and corporations make, often require credit, and are often really good progressive decisions. So credit’s not a bad thing. It just needs to be used responsibly, which most people do, and those who don’t use it well, well, that’s why credit assessors have a job in banks.
Simon: But certainly, we don’t have a record of irresponsible lending. I think what’s happened is, the Royal Commission has exposed some terrible stories, and some true stories, but that’s by no means the masses. The every day Ozzie, they haven’t had money just thrown at them that they shouldn’t have even [inaudible 00:06:00] our banks.
Simon: We need to return to sensible lending.
Kevin: Is there a scenario at all, where you see Sydney and Melbourne, our two biggest markets, showing any improvement in 2019?
Simon: The improvement will be, I guess, the rate of decline that they had in 2018, compared to with ’19.
Simon: Now I have absolutely no doubt that Sydney and Melbourne property prices, and Darwin, will decline in 2019. But whether that’s just a couple of percent decline, or whether that’s closer to 10%, like they saw in 2018, will be determined by when APRA takes the clamps off.
Simon: Now, actually some people in APRA are sort of suggesting it’s not them anymore, that it’s the banks. Look, I don’t know who to believe. But they got to stop the arm wrestle, need to bury the hatchet, and stop holding the country to ransom.
Kevin: Your prediction is that if we get a return to sensible credit policy in the first quarter of 2019, Melbourne could look at anywhere from zero to negative 3% in its-
Simon: Yeah. Which isn’t bad, really.
Kevin: Which is not too bad at all. I mean, that would sort of give us some sort of equilibrium. But that action’s got to come fairly quickly in the new year.
Simon: Yeah, and look, we do know that momentum has a big role to play in the property markets. Momentum in a boom period, for example, that fear of missing out mentality that buyers get when a market performs very strong for a long period of time. But, also, momentum has an adverse effect. If there’s a long period of time where people are negative reporting, people get miserable, and it can take quite a bit of convincing to get them positive again.
Simon: This is why the likes of the RBA and our Federal Treasurer have come publicly in this last month and have said, “Banks and APRA, you gotta bury the hatchet, because you’re gonna cause some unnecessary inconvenience and harm to our economy.”
Simon: Which, I need to stress, Australia’s economy and our underlying fundamental property markets have not been stronger since the onset of the GFC now 11 years ago. That’s really important for 25 million people to understand. The fundamentals have not been stronger for 10 years.
Kevin: We will talk about fundamentals in just a moment. The regional markets, let’s talk about those. We have seen, over the last couple of years, double digit growth in a number of those regional locations, largely from your reporting. Do you see that continuing in 2019?
Simon: Yeah, absolutely, I do. But I think it’s going to be … What we’ve seen, I guess, in regional markets the last couple of years, it’s been New South Wales, Victoria and Tasmania that have performed really strong in their regions. I think, in 2019, more so Victoria and Tasmania. There will be some New South Wales markets that will perform strong.
Simon: But Victoria and Tasi will especially stand out, but what we’re going to see in 2019 in the next few years is Queensland and Western Australia regions really start to pick up. It’s well known that they are Australia’s big resources states, and the resources industry has recovered very, very strongly over the last few years. But it will be 2019 that we’ll start to see that sharpening property market.
Simon: You’re going to see, I’ll make a bold prediction now, that one of the most improved markets in all of Australia in 2019 will be Mackay, a market that has been in the doldrums for six or seven years. We think it’s going to have a really, really strong year in 2019, but for years ahead, there’ll be lots of locations, not just Mackay, that will really put their head up.
Kevin: Okay. Well, let’s have a look at some of those, and not so much some of those, but maybe the fundamentals that are going to drive them to stick their head up. You’re famous, of course, for having nominated so early in the stage, what was going to happen in Hobart. What are the fundamentals that you track to pick on a potential boom in an area?
Simon: Yeah, and look, it’s never, it’s a great question. It’s never one thing. It’s accumulation of things together that paint a picture. But markets that have been … Rule number one is, we don’t pick markets that are already booming or just recently had a really strong [inaudible 00:10:12] in Melbourne or Sydney. It starts with picking locations that haven’t done much for a period of time.
Simon: Now just because they haven’t done much doesn’t mean they’re going to all of a sudden go. But it means it warrants some attention. Then what we look at is the current levels of housing supply.
Simon: Often, when a market has been performing poorly for several years, the local construction industry are down in the dumps, and they haven’t been doing a lot of new homes. So you can have markets, and Mackay is one of dozens of examples, where supply is tight, even though at that point in time, property markets are flat.
Simon: Then we need to look for housing affordability, because as confidence increases in a market, which is largely a byproduct of an economy improving, as confidence increases, those people who gain that confidence need to be able to afford to buy those properties.
Simon: So, right throughout Australia, especially once we get outside of capital cities, most locations have a median house price of $450,000 or less. In some cases, down to the mid-200,000s. So those dwellings are affordable to all of their communities. It’s just a matter of whether those individual communities are in the frame of mind to transact in properties.
Simon: When the economy starts to improve, they will take advantage of that improved confidence. If housing is also tight, then we start to see significant property price growth.
Kevin: Well, I guess the choice is yours as to whether you go to join that list of people who look at doom and gloom, and follow all that reporting, or whether you’re going to look for the positive signs of where there might be some growth, and maybe make some wise investments in that way. Simon Pressley.
Simon: Boom’s ahead, mate! Boom’s ahead, I promise you.
Kevin: Good on you. Simon Pressley’s been my guest. Simon is from Propertyology. Thanks for your time, Simon.
Simon: Thanks, Kevin.