19 Feb Expand or sit tight – that is the question – Shannon Davis
Is this a time to expand your portfolio or is it a time to sit tight? That the question we ask property investment expert Shannon Davis.
Kevin: Recently, I caught up with Shannon Davis from Image Property, keen to get his tilt after the Christmas break into the new year as to what he felt was ahead. Is this a good time to be expanding your portfolio, or is this a time when you need to consolidate? Here’s what his thoughts were.
Shannon: Yeah. I think every market presents opportunities. I think, first off, first home buyers will probably never get a better time to enter the market, especially in the more southern markets of Sydney and Melbourne. There’s still good value in Brisbane, as well.
Kevin: Why do you say that? Because, I mean, we’re hearing so much publicity about how unaffordable it is. Surely first home buyers are going to struggle the most.
Shannon: Yeah. But their gain can come from other people’s pain, so as there’s falling prices, they might get more affordability in there. They’re a clean skin when it comes to credit, so they’ve got a lot of factors coming into their play to take action.
Kevin: Will they be governed by fear? Because, I mean, there’s already reports that Australia’s in for somewhat of a tough time this year.
Shannon: Yeah. I think fear is always there. I remember my first home purchase. You’re pretty nervous when you sign that contract. But it’s also, sometimes, you just got to take action, as well. There will be a lot of people in stale mode at the moment, because credit is hard to get. You’ll see some developers that are unable to get their projects up and running, so you might see some projects come back to market with development application already granted. There’s going to be some people that feel the pain there. There’s some people waiting for the federal election to pass, as well, to see what changes are happening to property legislation in that respect. If you’ve got your backyard sorted, then it’s probably a good time to take some action and be able to gain from other people’s pain.
Kevin: First time investors, people buying their first property, Shannon, it would be difficult for them to say, “Well, I think this has got to be the ultimate purchase, so therefore, I’ll wait to get the right one.” Do you think it’s a matter of looking for opportunities, even if it’s not exactly what you want? If it presents a good opportunity, it’s worthwhile moving on?
Shannon: Yeah. I think in good markets, bad markets, there’s great opportunities. They’ve got to do their work and not be caught up in analysis paralysis. I think it’s a long-term investment strategy, as well, so be prepared to last the market out. Don’t be thinking of flipping and making that short-term gain, because the entries and exits are too expensive to do that anyway. I think if a good opportunity presents itself, you’ve done the sums, it’s going to have to service … because that’s all banks care about these days, not how rich you are, but whether you’ve got serviceability … and it presents, then you should go for it.
Kevin: Because we’re hearing, too, that the banks are getting very tough on their lending. With open banking on the way, there’s going to be a lot more scrutiny about where we spend our money. What would be your advice to someone starting out, maybe looking at their first purchase or even their second or third? How should they be preparing themselves to go to the bank?
Shannon: Yeah. Show genuine savings, I think. I think you need at least 20% deposit in most cases. I think you should be trying to demonstrate that savings. Less on the Uber Eats and more on genuine savings week in, week out, and you should find a friendly ear in your banker.
Kevin: You talked, then, about Uber Eats. That’s related to credit card spending and credit card limits. Are we moving more towards just wanting to spend cash as opposed to credit?
Shannon: Well, there is a lot more scrutiny on your statements. Before you could roughly disclose how much it costs for you to live, but people are going through it with a fine-tooth comb right now. All those discretionary spends are coming into it.
Kevin: Looking around the country, where do you think the best opportunities are going to lie? Is it in the regions, or is it in the cap cities? Because you mentioned earlier about looking at Sydney and Melbourne. You don’t think they’re a little bit overheated?
Shannon: They have been overheated, definitely, and they’re coming back to a more appropriate value right now. There’s a correction going on. Australia’s the most urbanised country in the world, so we all live one hour from the coast, and we mostly live in cities. For me, I want to invest where most bums on seats are, because that makes a more liquid market and a more profitable market when it’s rising. For me, I’ll be concentrating on the urbanised areas of Australia.
Kevin: Could you name a couple of those?
Shannon: Well, Brisbane has been slow and steady. Its house market’s still going strong. The apartment oversupply stories largely finished. We’ve seen that absorbed, and there’s more demand with interstate migration. I think Perth will eventually come back, as well. You don’t want to catch a falling knife, but at some stage, Sydney and Melbourne will reflect more attractive buying opportunities, which they haven’t for the last three years.
Kevin: What about the northern part of Australia? I was asked a question about Darwin. I only ever hear bad reports about Darwin. What’s your view on that market?
Shannon: I think the size of the market’s important, so Darwin can be a pretty volatile market. There’s not a lot of market depth there. That’s one thing that you need to watch for when you’re investing into places like Hobart and Darwin. Yeah. I think, for me, I prefer where I’ve got a lot more density, plus two million, wherever possible.
Kevin: You mentioned Perth there as the possibility that it’ll turn around. What about the Adelaide market? We’re seeing a lot of buoyancy there. There was a lot of negative press about the car industry, but that seems to have, by and large, have gone now.
Shannon: Yeah. I think, also, they’ve won some awards with defence spending down there, and that’s going to create some jobs. I think the mining’s on the way back, as well. Things like Olympic Dam and things like that are going to lead to more prosperous living. The trend is people looking for affordability be it retirees, or downsizers, or young people of the hunt for jobs. They don’t want to spend all their disposable income on a mortgage that is propping up a $1.5 million house. You’re starting to see people move to more affordable areas when those cap cities have been over-bought.
Kevin: The Canberra market seems to have performed pretty well this year, too. There’s been a lot of new housing go on. There was the Mr. Fluffy scare a couple of years ago. That seems to have now gone. Does the Canberra market, in your experience, suffer much because of the federal election? A lot of uncertainty, more so than anywhere else in Australia.
Shannon: Well, when you think John Howard got elected, and the first thing they did was sack 10,000 public servants. Then that has a real big knock-on effect. If we’re hiring public servants, Canberra will do well, and if we’re firing, not so much.
Kevin: Well, we see a Labour government move in. There’s a possibility they will bring of more public servants, so are you foreshadowing the fact that if Labour do win, that maybe that’ll be good for the Canberra economy?
Shannon: Yeah. Historically speaking, I think so. That’s a safe assumption to make.
Kevin: It’s an interesting one, too, because we hear only negative press about Labour. Although, there seems to be a lot more positive press now about negative gearing, and it seems to me as if it’s almost gone on the back burner. It’s nowhere near as important or critical when you consider what’s happening overseas in the U.K. market and the U.S. market right now. That’s probably going to have more impact on us.
Shannon: Yeah. Definitely share market wise, I think, maybe Brexit might be advantageous to us on a trade level. We might do more, but the tariff war definitely is going to bite Australian shares and the Australian economy, given the importance of China to our economy now.
Kevin: Bottom line?
Shannon: Bottom line, I think it can be a bit of a volatile year, especially when we’ve got Trump in charge over there, and they seem clueless about Brexit, as well. Yeah. It could be rocky internationally. Australia’s 27-year run, if we’re not careful, might come to an end with a recession, so we got to watch those things and make sure the economy’s on the up and up wherever possible. When we’ve all got jobs, that bodes well for property.
Kevin: Well said. Shannon Davis, Image Property. Thanks for your time, Shannon. Always great.
Shannon: No worries, Kevin. Thanks.