Listen to Warren Buffett + Values tipped to ‘tumble’ + NZ regional markets shine

Listen to Warren Buffett + Values tipped to ‘tumble’ + NZ regional markets shine

Highlights from this week:

  • More proof not to ignore the regional markets
  • House prices tipped to ‘tumble’ by 2021
  • Warren Buffett’s theory plays out
  • Construction sector under threat
  • NZ property values grow outside Auckland

Transcripts:

NZ property values grow outside Auckland – Peter Bromley

Kevin:   We take an intense interest in what’s happening in the New Zealand property market. Joining me to talk about that, Peter Bromley. Peter is the general manager, sales and marketing CoreLogic New Zealand. Peter, thanks for your time.

Peter:   Thanks very much.

Kevin:   Interesting report out from CoreLogic showing that prices have come back just a touch in Auckland. How’s the mood in the market in New Zealand right now, Peter?

Peter:   Yeah, you’re right. So in terms of general aspects, Auckland values have continued to be more plateauing, and that’s been the case for two years, but there’s still some growth in other centres, particularly around Wellington and Dunedin, where listings on the market have remained pretty much at low levels. So lots of interest in those, and obviously when you look at the price point to Auckland, there’s obviously much more affordability in terms of buying in those areas.

Kevin:   Yeah. Average value. Is that a median? In Australia, we call it a median. Is it an average value in New Zealand? It’s over $1 million dollars in Auckland.

Peter:   Yeah, it is. It is an average value. It’s one of the things that’s different to Australia, but the average value at the end of August was just over $1 million in Auckland. Whereas in places like Wellington, it’s 770-odd thousand dollars. In places like Dunedin it’s 415. So if you look at that affordability when incomes are probably not even as high as 90,000 in some of those places, it makes it a much more realistic prospect to buy in those areas rather than Auckland.

Kevin:   Yeah, Christchurch market still seems to be a little bit depressed. It’s probably one of the lowest average values in the country, in terms of a cap city anyway, just a touch under 500,000.

Peter:   Correct. And there’s still massive rebuilding to go on down there and lots of change. So it’s one of those things you’d expect in such a beautiful city.

Kevin:   Hamilton. Correct me if I’m wrong, but the Hamilton market, it’s quite a big north island city too, it’s been a little bit slow. This increase last month, 2.3%, it’s a bit of a turnaround, is it?

Peter:   It looks like that, but again, and I always say with any one quarter just to be a bit cautious, and when I talk to the research guys I give them the same advice. So you’d want to see what happens over the next quarter, two quarters, and we’re moving into spring, so it’s a nice part of the country. So you might actually see a little of a tick up there.

Kevin:   Wellington seems to be going quite well. The annual increase there has been 8.5% and even fairly solid last month at 2.1% as well.

Peter:   Yes, that’s right. And I think that’s … Again, it’s indicative of … It’s still got some strong prospects, some employment growth down there obviously with a lot of the government sector there and again comparable to Auckland in terms of the actual value of a property. It’s still attractive and again, it’s a nice city. It’s got a great harbour. When you talk to people from Wellington they really buy into it and so it’s got a really strong culture around it.

Kevin:   KiwiSaver seems to be getting some fairly good press as well and good reports also out of New Zealand with first home buyers. How does KiwiSaver work?

Peter:   That’s one of the things is holding up. I think some of the first home buyer market and it’s important that I think we see how that continues to trend. My time here, it’s one of the things I’m working with to understand more, those drivers for KiwiSaver. But from what I see and what our research guys tell me, it’s one of those things that helps encourage first home buyers.

Kevin:   Yeah, indeed. And it’s obviously having some good impact too. Might be some lessons there for other parts of the world to learn from as well. What about investors? Can we just turn our focus to them for a moment? Because we’ve spoken in this show in the past about the legislation recently introduced by the government there that was trying to put a bit of a dampener on overseas investors. What impact are you hearing that’s having on the market, if any?

Peter:   So from an investor market it’s interesting. If you take it at a very high level, it’s still fairly buoyant, and in fact if you look at the investment market, the alternative, those that have taken mortgages this quarter versus previous quarters. So 24.4% of mortgages in this last quarter was from investors as opposed to in the previous quarter and quarter two this year, 23 and 22 in quarter one. So there’s still a fairly strong activity in the investment market. The government changes that go through this year will certainly … Obviously they’re designed to do some change around the Tenancy Act and obviously in terms of regarding rent rises and eviction periods and also the negative gearing changes, but overall you’re not seeing a mass exodus at all in that investor market. I think from the overseas buyers, though, you’ll see some potential impacts, maybe in Auckland, where they’ve obviously focused more, and obviously in places like Queenstown Lakes District, you’ll see some as well. So I think that’s still to be seen in those particular areas of where overseas investors might change their thinking.

Kevin:   Yeah, and it’s likely that’s going to be more longterm too because that type of investment is pretty much centred around the unit and that impacts the construction market as well. So there might be a bit of a lag time, Peter, do you think?

Peter:   I think so. And again, just as a sort of one of the things we’re not doing here in New Zealand is building enough new stock. And I think that’s one of the things that will still keep prices in many cases fairly solid in terms of that and not see any major changes.

Kevin:   Is that right across New Zealand or are there any markets that are suffering more than others in terms of lack of stock?

Peter:   Even the Auckland market. Some of the things I’ve started to understand here since I’ve been here is we built last year, I think, 11,000 new properties, but one of the things that you’ve got to look at is net new growth in new property. So you might build 11,000 new properties, but you have to knock down 5,000 to get those 11,000. And I think one of the things is actually how we build better stock and then in the right places. And I think one of the other things is how that then is supported by the right infrastructure that goes with it. So just simply building a whole bunch of new homes in a new area doesn’t really work well for the whole social environment if you don’t have the right infrastructure around schools, transport, and how long it takes to get to work is a real critical part, I think. And I know New Zealanders are now really looking at that.

Peter:   I was fortunate to be at a launch last night for the Property Foundation, which is some work done by a lot of industry working with Massey University and they’re taking some of the lessons that have been overseas, and seeing how you make sure that you build your new stock in the right way and support with the right infrastructure, be it transport, be it schools.

Kevin:   Yeah. No, very good. Good insight there too. Peter, I want to thank you very much for joining us and giving that. We’d like to get a fairly regular update on that New Zealand market because it’s very close to what we do in Australia as well. Peter Bromley has been my guest. Peter is from CoreLogic in New Zealand. Peter, thanks for your time.

Peter:   Thanks very much for having me.

House prices tipped to ‘tumble’ by 2021 – Graham Cooke

Kevin:   Well, our next story will shoot daggers into your heart no doubt, but finder.com.au predicting that house values across the nation are expected to tumble by 2021. Joining me to talk about this, Graham Cooke from finder. Graham, it’s a pretty drastic statement you’ve put out about property values tumbling.

Graham:   Yeah, g’day Kevin. How’re you doing? Always good to chat with you. This one is interesting indeed. It follows on from the question we asked in last month’s RBA survey. You might remember that we do a survey every month of the leading economists on Australia. There’s 30 or 40 on the panel. We ask them questions surrounding the RBA’s decision of whether or not to increase the cash rate, and recently we’ve been focusing on property questions because that’s what everybody’s talking about and because we’ve seen auction clearance rates dropping and prices dropping.

Graham:   Last month we asked them how long they expect the downturn to last, specifically in Melbourne and Sydney, and the average came through at 20 months with … I think it was about a quarter of the economists actually citing two years or more, so that was a little bit concerning. This month we decided to ask them more specifically about the percentages they expect the prices to drop across the capital cities.

Graham:   So, we took the averages of those and we also looked at the current median house prices to look at what drops our economists are forecasting. Just looking at the percentage drops perhaps unsurprisingly at the top comes Sydney at 8.2%, followed by Melbourne, very closely followed by Melbourne at 8.1%, and then Brisbane at seven. And all the rest are kind of five or less. Very bottom of the list is Hobart, which actually is doing quite well at the moment, at only minus 4.6% for that particular capital.

Graham:   In a separate story recently, we were looking at a boom and gloom index of various different cities and a forecast of how they’re going to perform over the next few months. Hobart came out strongest in terms of the number of suburbs that it had that were in the top ten nationally. So, Hobart’s doing quite well, but not good news for Sydney and Melbourne. Adding those percentages to the current median house values in those cities, we’re probably looking at about 80K knocked off the face value of a median home in Sydney, and about 60K in Melbourne.

Kevin:   Just on talking about medians for a moment, and this is where I think a lot of people get confused, they think of medians as value whereas median is an indication of where the market’s buying. So, really what this reflects is not necessarily a drop in value, but a predominance in the number of people trying to buy down to make it more affordable.

Graham:   Yeah, and also a lot of things are going to affect that in terms of what people are willing to sell at. We’ve also seen the decrease in the volume of property hitting the market, which means that with prices falling there must be a certain percentage of sellers out there who have been holding back for several months in a row.

Graham:   I was seeing some houses … I live in the inner west in Sydney, which is a very fast turning over housing market. I’ve seen houses sit on the market there for six months and not sell. So, it does mean that because of this situation we’re probably seeing a fair number of buyers who are holding off and waiting for that price they’re hoping for. And if we do continue to see prices slide as these results indicate we might see at some point those buyers are going to be forced to sell at less than they really want. We could see this look [inaudible 00:03:28] potentially, but it’s all to watch for at this stage.

Kevin:   Yeah, of course, not everyone can afford to sit on their hands for the next couple of years on the basis … assuming that the market will come back a little bit to make it more affordable. It’s a difficult decision for some people, and I guess … I’m not being critical, but some times these statements make it difficult for people to make a decision.

Graham:   Yeah, and it’s difficult to really predict what’s going to happen in the future. Very few economists in Europe predicted what was going to happen in the GFC pre-GFC, and even as it was happening, even as the prices were falling, very few experts predicted prices to go as low as they did. Some properties lost 30% in value in a short period of time, which had never really been seen before, so it’s kind of all to play for.

Graham:   But the one thing I would say for buyers at the moment what this does mean … we don’t really know when the market’s going to bottom out or whether the prices are going to start going up tomorrow. It does mean that if you’re looking to buy at the moment, you should make sure that you’re getting good value in the market. There’s no need to just jump on the first property that comes up within your budget that ticks all the boxes, which people have been doing previously. Now you can give yourself a little bit more time to make sure that you’re getting value for that dollar that you’re spending, which would be good in the end for the buyers.

Kevin:   Yeah, as we pointed out in the show too, we’ve probably done it in this show, is in fact only two out of three buyers in Australia actually choose to live in one of the Cap cities. There is still tremendous buying in some of the regions, even looking around at say Queensland, New South Wales, Victoria, where you can move out of the city, still get a good commute back into the city and spend as much time travelling, but you can get a home that’s a lot more affordable. I think more and more people are going to be moving to the regions.

Graham:   Yeah, indeed. We also, because of that price differential, have seen an increase in people rentvesting. That’s people who do buy those houses in the fringes, but as an investment and continue to rent closer to the city where they can actually live. A lot of the younger investors that I’ve talked to and seen across the market who have multiple properties have been focusing growing their portfolios in those outlying markets.

Graham Cooke:   There was a guy I saw talk to a panel in one of the banks in Sydney recently, and he’s in his mid-twenties but he has eight or nine properties, I can’t remember, but the majority of the properties he has are in places like Newcastle and more outskirt cities. Which is great for his current situation, but it is also an increase in risk, because if the market continues to slide even further it could be those places that experience the biggest drop in prices and indeed drops in rent. If you got [inaudible 00:06:11] important to be cautious as well.

Kevin:   Graham Cooke, my guest Graham is from finder.com.au. Graham, thanks for your time.

Graham:   Thank you very much, Kevin.

More proof not to ignore the regional markets – Simon Pressley

Kevin:   Well certainly the recent negative property media relates primarily to Sydney and Melbourne. We’ve said that in the past. There have been downturns in those areas, so everyone seems to think that nationally the property market’s in decline, but we should remind you that one in three Australians choose not to live in a capital city.

Kevin:   So, what impact does that have on property prices? A recent blog article that we carried on our site, and check it out from Propertyology, points out that there are factors that we need to take into consideration to get a full picture for what’s happening with the Australian property market. Joining me to talk about that, Simon Presley from Propertyology. Simon, thanks again for your time.

Simon:   My pleasure, Kevin.

Kevin:   Let’s talk about the property markets. You say in the blog article that four out of the eight capital cities, including three of Australia’s four biggest capital cities produced small declines over the last 12 months.

Simon:   Yeah, that’s right. I mean, so, Sydney, Melbourne, and Perth. Three out of our four biggest cities, lost there absolutely no question, but those three big markets have had price declines over the last 12 months. With the exception of Hobart, the other three out of our eight capital cities have had very very mild price growth 0.8% in Brisbane the last 12 months, 0.7% in Adelaide, and 2% in Canberra.

Simon:   But look it was a few years ago Kevin that Propertyology went on record and said “we anticipate there’s gonna be a very lean period for capital city property markets ahead, but the opportunities will be in regional Australia”. So, we’ve been saying that for long time on this show we’re producing lot’s of evidence to try to educate people. The latest bit of information we’ve put out in the public domain is an interactive map. So the Propertyology website there’s a map where people can scroll around there’s actually 64 locations none of which are in a capital city where property prices are growing as we speak. Some of those growths are mild 2% or 3%, there’s actually 16 locations throughout Australia right now that have produced double digit price growth.

Kevin:   Yeah, I’m looking at this map now and you can go to the Propertyology website. We’re gonna carry this blog article underneath this interview and also give you a link to the Propertyology site. Strongly suggest, when we go to the site where can we find it there? Cause I’m looking inside your blog article at present.

Simon:   Yeah, so go to Propertyology.com.au. Click on the insights tab in the menu bar right across the top of the page and it’s the very first blog that’s live on our site now titled “Where to Find Australia’s Strongest Property Market”. Click on there, there are some short commentary about what’s happening throughout Australia including as you very wisely said at the start of this interview Kevin, reminding people that 1 in 3 Australians choose to not live in a capital city.

Simon:   If you’re looking to invest it’s not a matter of whether you would or would not live there. The key is do others want to live there and why do they want to live there and what’s happening to influence their individual property markets, but large parts of regional Australia, they are producing some, you know,  in some cases we’re talking double digit price growth.

Kevin:   Yeah so we’ll carry that link below so jump into that, that’ll take you if our smarts are right. We’ll try to work it out so we can take you straight to that blog article. I’m just looking on the map now. You just simply click on one of the locations. I’m looking at, let’s say for example, North Queensland. I’ve just clicked on that and there are two locations in that area that are featured.

Simon:   Yeah so it enables people to zoom right in, to scroll around. The statistics on the interactive map shows you the change in median house price over the last 12 months. It also shows you what the median house price value is, so if you are contemplating investing in some of these locations and you’re curious what the cost of a typical property will be you’ll see that all on our exciting new interactive map

Kevin:   Yeah it is exciting too. I just clicked on the Brisbane link too and you can see various locations around and then you just move in to get the locations and all of the stats. So we’ll put that link up, but once again it highlights the story that we’ve been banging away about for sometime, you more than us. But that there are bigger fish to fry when you get outside the cap city market Simon.

Simon:   As they say small fish are sweeter Kevin, and nothing could be truer in Australian property climate right now.

Kevin:   Well you’ve proven that to us time and time again. Simon Presley from Propertyology, thanks for your time Simon.

Simon:   Thanks Kevin, have a great day.

Warren Buffett’s theory plays out – Harris and Bateman

Kevin:   We’ve heard a lot, haven’t we, about the downturn in Sydney and Melbourne, how it’s … not so much a downturn, but I guess a bit of a slowdown. There would have to be some tremendous opportunities for you to capitalise on any slowdown anywhere, but particularly in Sydney and Melbourne. Joining me to talk about this, the Property Mentors themselves, Matt Bateman and Luke Harris. Gentlemen, welcome to the show.

Speaker 2:   Thanks, Kevin.

Speaker 3:   Thanks, Kevin.

Kevin:   You’re seeing a lot of opportunities that you’re talking to people about the opportunities for Sydney and Melbourne and capitalising.

Speaker 2:   Yeah, definitely, but I think we’ve got to be really mindful and put this into a context. A lot of the media is really talking about the median house downturn, and realistically what we are seeing in the market is the top end of the market’s probably led the decline in prices which has really put a drag on the overall median prices, so we’ve got to be really careful to understand that Sydney’s not one market, it’s actually made up of many, many, many sub-markets, and not all of them are actually slowing down.

Kevin:   What a great point, and I think this is something that we misquote often, I know a certain part of the media do, and that is that the median is really only an indicator of where people are buying, and you make the great point there that if the top end is coming back a little bit, it doesn’t mean values are dropping. It just means that people are looking for more affordable properties.

Speaker 3:   A hundred percent, and I think one of the key things that people look at is that in the media, they’re often picking one piece of data, and of course if you’re looking at one piece of data on its own, you can make a story of that, but if you’re looking at the overall market and you’re looking at all of the data considered together, then that can give you a completely different picture altogether, so really it depends on what data you’re actually using to decide whether that market’s actually slowing down or actually not slowing down.

Kevin:   So what are you finding? Can you point us in the right direction? Let’s deal with Sydney first. Where are some of the opportunities emerging?

Speaker 2:   Yeah, I think we’ve got to take a bit of an overview of I guess property investing and time frames for investing. One of the biggest mistakes we see with investors is that they’re really focusing on where’s the next hot spot or where is the biggest I guess opportunity right now without necessarily taking into account all of the long-term macro play. If we look at both Sydney and Melbourne, they’re both very similarly populated at the moment and they’ve both got probably world-leading population growth relative to all the advanced economies around the world, so what we’ve got to understand is that both Melbourne and Sydney are tipped to sort of be populations of eight million people or more in the not too distant future, so really the short-term focus is really not what we probably spend a lot of our time with our members on. We’re really looking at is how long you are intending to own this property for. Yeah, sure, if it’s a 20 or 30-year play, that’s great. What can we do now in the micro level, so what can we do right now to find some of those opportunities.

Kevin:   Yeah, so what you’re really saying is look past those hot spots, and I’ve never been a great believer in hot spots anyway because by the time you find out they are, they’re not anymore, but you’ve really got to look at the long-term plays, is that what you’re saying?

Speaker 3:   Exactly, and look, I learnt this when I was in my early 20s. I read it somewhere and it might have even been on your show a while back. I learnt this and it was basically if you’re reading it in the media, you’re already 90 days too late. It’s already happened, so you’re looking at data that’s three months old, so I think our focus for investing is always long-term. Now, there’s some people that are investing and they’ve got a particular age or a financial position where they can’t wait long-term. If you’re in your 60s, potentially you don’t have time to wait for the next market recovery, but at the end of the day, for most investors, they just need to buy property and hold onto it.

Kevin:   Okay. I need a bit of an insight, guys, so where are you focusing on now in Sydney and Melbourne?

Speaker 2:   Yep, so in terms of Sydney and Melbourne, we’re really looking at I guess those areas that are strongly supported by economic activity, jobs, where there’s obviously still a short fall I guess in supply, so obviously parts of Sydney have gone through very strong construction booms over the last few years, and obviously those areas are the ones that are really sort of I guess leading the downturn. When you look at those suburbs that are sort of more positioned sort of probably middle ring, not in those high activity centres, still have really strong underlying demand, have people who are living in that area that are attracted to the jobs, the schools, the amenity of the area, have good income and can still service loans, they’re the areas we’re really focused on.

Speaker 2:   The biggest problem at the moment we’re finding is going to be can you service a loan, particularly in the wake of the Banking Royal Commission, and we’ve still got findings yet to be handed down and recommendations yet to be implemented. Obviously it’s the credit cycle and the tightening of the credit which is really going to drive either prices up, down, or have them stay where they are at the moment, so I don’t want to give you one suburb because it sort of defeats the purpose of understanding how to become an advanced investor. What we’re saying is that there’s a whole bunch of data that you need to understand and measure to be able to go out and pick these areas.

Kevin:   Yep. Good talking to you guys. Thank you for your insight. Luke Harris and Matt Bateman from thepropertymentors.com.au. Thanks for your time, guys.

Speaker 3:   Thanks, Kevin.

Construction sector under threat – Melissa Adler

Kevin:   As we all know, the building industry has a big impact on what happens with property prices and the general mood of people in the property market.  If we get an increase in building activity it’s gonna bring on more supply and one of the things that we do have in Australia is a lack of supply. We’ve been talking about how many new buildings we’re gonna need each and every year so therefore the building industry is one that we should keep a very close eye on. Helping us do that, the Housing Industry Association, HIA, have made a statement about some recent changes that could be legislated. Joining me to talk about this, Melissa Adler, who is the Executive Director Industrial Relations at HIA, Melissa, thank you very much for your time.

Melissa:   Thank you.

Kevin:   What would you say is one of the biggest challenges facing the building industry right now?

Melissa:   Well, considering the boom that we’re currently experiencing and as you said in your opening the need for housing supply, getting skilled trades, is one of the biggest challenges faced by the industry. And so we think that the decision of the Commission and some of the changes that are being made or that will be made to the award will help builders employ people, will make it more attractive for people to go into the trades and just smooth out that employment relationship, which can be difficult sometimes.

Kevin:   Well, what are some of those changes that are in front, just tell us about them.

Melissa:   Absolutely. So one of the biggest changes and that we think is gonna have a significant impact is the removal of what was called a travel allowance when a fully maintained company vehicle is provided. So obviously in the industry, everyone drives everywhere, has a company car most often and prior to this decision an employer was required to pay an additional allowance irrespective of the fact that a company car was provided. So it’s just little things like that, that make it more attractive for employers to have    employees and to provide the benefit of something like, for example, a fully maintained company car.

Kevin:   I imagine there’s gonna be a bit of pushback from the unions anytime you make a change. So I’m not asking you to make a comment but it’s a very large industry. It’s, what, I think your statement says a $130 billion residential building industry. That’s not insignificant and anything that’s going upset that is going to impact the economy I would have thought.

Melissa:   Absolutely and I guess our perspective would be that these changes notwithstanding, what the unions might think or might say, is going to support the contribution that the sector makes to the economy and make sure that it’s maintained into the future.

Kevin:   I mean, it’s a big employer, isn’t it?

Melissa:   Absolutely.

Kevin:   And as we said, it’s also a trigger for economic growth so it’s a fairly important factor. At what stage are these changes? Where are they and when are they likely to be legislated?

Melissa:    So our understanding is that these things will come into effect from the first of December. So we’ve got a little bit of work to do in finalising some of those changes but all things being equal the first of December is when we should see these changes coming into effect.

Kevin:   And who’s pushing this through? Is this a Fair Work Commission?

Melissa:   This is a Fair Work Commission so they’ve just made a decision and, as I said, out of that decision we’ll need to engage in some further consultation and then from one December all these things should come into force.

Kevin:   We’ll watch for what happens with interest. Melissa Adler’s been my guest, the Executive Director Industrial Relations at HIA. Melissa, thank you so much for your time.

Melissa:   Thank you very much.

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Kevin Turner
kevin@realestatetalk.com.au
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