One year after changes + Lessons from top investors + 2019 property ‘hits’

One year after changes + Lessons from top investors + 2019 property ‘hits’

Highlights from this week:

  • Where the banks are headed this year
  • The property ‘hits’ of 2019
  • The fallout from changes 12 months on
  • Lessons from investor award winners
  • Industry body new leader speaks out about the future

Transcripts:

Industry body new leader speaks out about the future – Adrian Kelly

Kevin:   My next guest is the new president of the Real Estate Institute of Australia. He’s also the founder and CEO of View Real Estate, a very successful independent operation in Tasmania. Adrian Kelly is my guest. Adrian, congratulations on your elevation to president of the Real Estate Institute of Australia.

Adrian:   Good on you Kevin and thanks for having me.

Kevin:   It’s my pleasure. A number of questions I wanted to ask you about.

Adrian:   Sure.

Kevin:   What’s your vision for the institute in Australia? What do you see going forward? Because currently it’s just made up of all of the institutes in Australia with the exception of Queensland.

Adrian:   That’s right. Look, I’ve got a one year term. That’s how our presidential reigns work, and I can tell you that my short term focus is going to be on the federal election. So, whether that be in May or slightly before, we’ll soon find out. We’ve already started doing a lot of work in gearing up for that because obviously it’s going to be an important election for Australia and our members.

Kevin:   What’s the institutes view on negative gearing?

Adrian:   Look, that obviously could be a long conversation, but I think whichever party forms government needs to look at taxation in a holistic manner, not just negative gearing. Unfortunately, negative gearing has become a little bit of a political football now, and capital gains concessions to a lesser extent. But I’m quite comfortable in thinking that both of the major parties will talk to us in a logical manner in the lead up to the next election rather than using topics like negative gearing just to potentially obtain some votes. Because we’ve got different markets right across Australia and some are flying at the moment and some aren’t. So, I think any changes to government policy like that need to be at least taking into account what’s happening in the market at the present time.

Kevin:   Yeah, I think that’s the reality, isn’t it? That negative gearing or what labor opposition are proposing to do is more of a political stance as opposed to an economic stance. It just doesn’t make sense economically.

Adrian:   Well, the problem is, Kevin, is that if you read what all the respected economists are saying, and you and I probably both do that, is that it seems to me that nobody really knows. Some economists are saying that ABC will happen if you start mucking around with negative gearing, and other economists are saying that XYZ will occur. Because negative gearing has been a long term structure of taxation policy for decades now, it’s very difficult for economists to pinpoint exactly what might happen if you start changing it. So, I think that’s the big issue. But as I said before, federal governments need to look at negative gearing as part of the whole property taxation landscape, and that’s what we’ll be encouraging them to do.

Kevin:   How will you be out to position the institute in Australia? Are you looking for it to be the lead body, the main spokesperson working with the government?

Adrian:   Well, that’s what we’ll be intending to do. I mean, we’ve got thousands or tens of thousands of members, or members of institutes right across the country. So, it’s our role to provide the national voice, and that’s exactly what we will be doing. Having said that, we have some significant support from many of the major estate agents across the country, including the large franchise groups. But we’ll be rolling all of that out in the new year.

Kevin:   Yeah, it’s unusual that the Real Estate Institute of Australia is made up, it’s members are really the members of, sorry, the institutes in different states. So, you don’t have any direct link with any of their members as such, do you?

Adrian:   No, that’s right. We don’t want that either. REIA was never intended to be that. The national body has survived 92 or 93 years now as it is, so there’s really no reason for that to change either.

Kevin:   Let’s talk about the strategic plan. Are you looking to continue with that, or are you looking at some changes in overhauling it?

Adrian:   This is the plan that’s currently in place you’re talking about?

Kevin:   Yes, yes.

Adrian:   Yes. So, look, we’re actually a fair way through that. There’s not too many red dots, if you like, on that plan. So, we’ll be pushing on with that. I suspect that we should have that pretty well completed by about the middle of next year, but I have to say, Kevin, that our focus next year is going to be on being the national voice for all of those mum and dad estate agents across the country, because that’s what we should be doing.

Kevin:   Does the Real Estate Institute of Australia compete in some way with the state institutes in terms of accreditation and education if you’re looking to take that role?

Adrian:   The short answer is no. We don’t play a part in that at the moment and we don’t intend to. That’s really up to the individual states to work through that themselves. Plus, you’ve got individual regulators too, Kevin, in each of the states, so different legislation. It’s just not something that’s feasible for the national body anyway. REIA is purely an advocacy and policy body, as it should be. If anything, under my tenure over the next 12 months, I’ll be looking to improve on that.

Kevin:   So, doesn’t it make sense though to have licencing under some sort of federal ruling as opposed to state by state? It’s very clumsy.

Adrian:   Look, that would be nice. I suspect getting all of the states, state regulators that is, to agree to something would be a bit like herding cats. It’s a bit like saying, “Wouldn’t it be easier to have one standard drivers licence across the country?” But it’s not that simple because you’re looking at changes to legislation, all sorts of things. So, whilst that would be ideal, it would be nice, at the moment we’ve got the mutual recognition which happens between states. That works reasonably well, but there’s always room for improvement. So, I don’t think that will be any part of our focus in the short term, Kevin, to be honest.

Kevin:   For the Real Estate Institute of Australia to be the peak body. To be that main liaison and have some relevance in the political environment you would need to get membership from all the states. Can we talk about Queensland, why they haven’t seen fit to join the national body? What will you do about that?

Adrian:   Look, Queensland haven’t been a member of REIA for a number of years, and I think that’s unfortunate. To be a member of REIA, there’s essentially two things that need to occur, and that is you need to pay your way, as all the other states do, and there needs to be good will. I, as has our previous president, the olive branch has always been there for Queensland to come back in. It doesn’t make sense for a national body to have one of its largest states not a member. I suspect that over the years past, they may not have seen value in being a member. But I will do what I can next year to have them back as a member, regardless of how we might have to structure that.

Kevin:   Do they have a voice? Do they attend meetings?

Adrian:   No, they don’t. No. They take part in commercial conversations between the institutes as they should. That’s because all of the institutes have something to gain by using their collective bulk, if that makes sense. But in terms of policy and advocacy, they don’t have a voice. Having said that, everything that the REIA produces, sends out, speaks about, will obviously encompass Queensland to the best that we can anyway, because that just makes sense.

Kevin:   Yeah, it’s such an important or such a big part of the Australian landscape in terms of real estate. To not have it represented on what is meant to be the peak body just doesn’t make sense.

Adrian:   Look, I’m sure that we can get Queensland back on track with the rest of us at some point, but I suspect that will be a timing issue, Kevin. We’ll see what happens.

Kevin:   Adrian Kelly, my guest. Adrian is the new president of the Real Estate Institute of Australia. Adrian, thank you for your time, look forward to talking to you during 2019.

Adrian:   Thanks for having me, Kevin.

The fallout from changes 12 months on – Brad Beer

Kevin:   Well it’s been just over a year since the Australian Federal Government passed the treasury laws amendments housing tax integrity bill of 2017. That’s a mouthful. Within the bill were a number of changes affecting owners of income producing properties including changes to rental property travel expenses, and residential property depreciation. The changes to property depreciation were perhaps the most significant change to tax depreciation laws sine the 1980s. Today talking about that is Brad Beer, the chief executive of BMT tax depreciation. Brad how are you?

Brad:   Great Kevin and great to be here as always.

Kevin:   Yes. Happy New Year, first time we’ve spoken in 2019. Hey Brad, let’s talk about the results, these changes they’re having on investors and the property market and also I would like, if we could, discuss what BMT data shows in terms of the deductions that you’re still finding for your clients.

Brad:   Yeah, for sure.

Kevin:   Okay. Well mate, for those who aren’t aware, what changes were made to depreciation legislation in 2017?

Brad:   Yeah. Look the …. we’ll keep it simple, but in 2017 they as part of the integrity cleanup of things that they thought investors were claiming when they shouldn’t, on things like travel allowance, etc. They also had this little one in there for depreciation changes. They went and had a look at the plant equipment that’s claimed in a residential investment property and basically said that you can no longer claim on second hand or previously used plant equipment items. Which are things like the carpets, the stoves, the blinds, the curtains that we used to make a claim for if they were second hand there is no longer an ability to claim for those things on a second hand property.

Brad:   Depreciation has got two components. One is the structural part of the building. No changes to that one, that’s exactly the same, that’s 2.5% of the actual construction cost as long as it gets billed by the date. But the other piece where you used to claim against a second hand stove or curtains, all those things are no longer able to claim against those. Now if it’s new, you still get to claim against those things, but second hand properties they knocked that out. So no more claims which was really odd, but anyway they knocked it out. They make their rules right.

Kevin:   Yep. That’s right, that’s exactly right. I remember at the time too, when you and I were talking, I know you’re on a plane quite often talking to the government, there were many changes. Over time, I guess you really get to see the impact, so who was affected and what can still be depreciated?

Brad:   The people that are affected are those … anyone who’s bought a second hand residential property or exchanged it after 7:30 on the 9th of May 2017, when they changed it. Those people are now affected by this change and can’t effectively claim as much depreciation or claims against their property as they used to be able to before that. Now look, they are the only people that are affected, everybody else, commercial property owners, buyers of a new property aren’t affected. People that buy properties and then add things at a later date, if you buy things you’re still able to depreciate them. If you buy a new stove, year after you buy the property or just straight after you buy the property then you get to claim the depreciation as it was.

Brad:   But it’s just those people that have bought a second hand property that the rules have changed for.

Kevin:   Yeah. Yeah. What change has occurred in the property market over the last year, Brad?

Brad:   It hasn’t had the best time, really, because continuing drops, well Sydney especially have had some drops over that period of time. I think the average dwelling is 4.1% across the whole nation. Sydney’s medium dropped 8.1%, Melbourne 2.6%, Perth, Darwin 4.2 and 8% respectively. We’ve had some of the a slower market due to many things like the difficulty of people to get money and settle, and the changes to overseas investment. A bunch of things that have just cooled off our market over that period of time.

Kevin:   Do you … how much impact do you think the legislations’ had? How much of it’s responsible for these changes do you think?

Brad:   I don’t think the depreciation changes makes a major difference because people still crunch their numbers. We’ll get them the numbers at the moment, but they’re still substantially deductions there. It’s a bit less, but I don’t think just that depreciation changes a major reason for people to change their decision. I think depreciation shouldn’t be the only reason for buying a property in the first place. It’s just a cash flow issue that you should work out and there’s still a fair bit of cash flow change for people that have bought after those changes.

Kevin:   Well just on that topic, are there any areas bucking the trend that investors should consider in your opinion?

Brad:   Well, I guess on the numbers, Hobart Tasmania over that year still actually grew, so had 9.3%, now it’s had a fair bit of growth over that period of time compared to those obviously. Canberra was still fairly strong through the year, 4% up until November 18. Regional towns still performed okay, some of those places like Tamworth, Hunter Valley.

Kevin:   Yeah.

Brad:   Some of those places still performed okay over the last year. That’s not a crystal ball, that’s the past.

Kevin:   Yeah. Oh yeah that’s right, exactly. Yeah. Brad just to wrap this up, talking about those changes to legislation, what does BMT’s data show in terms of average depreciation claims that the investors are following?

Brad:   So those changes as we’re saying is affecting those that buy second hand property, but the data that comes thats probably most interesting to say that there’s still deductions there I guess is in the year before they made those changes, the average first year claim out of our depreciation reports and they were something like 65 to 70,000 of them we did. So it’s based on a large number, was just under $10,000 in that first year. So in the year after, across all of our reports the first years claim was about $8,900, so that’s a slightly less deduction across all of them. But the ones that are affected by this budget change directly out of those in that financial year are still over a bit of $5,000 in deduction in the first financial year by all of the reports we did in the year after the change was made. So still substantial deductions available and the data shows that there’s still some numbers there.

Kevin:   Yeah.

Brad:   Just to be found.

Kevin:   Yeah. Absolutely. Well Brad fresh into the new year, 2019, great to catch up with you. Again, look forward to chatting to you again as the year progresses and we’ll see what changes are ahead of us.

Brad:   As always, thanks Kevin.

Where the banks are headed this year –Shannon Davis

Kevin:   As we get further into 2019 I want to catch up with Shannon Davis. Shannon is a regular on our show. He is from Image Property. Shannon has a wonderful brain about real … I hope you don’t mind me saying that to you Shannon, or about you because I do appreciate your insights into the property market.

Kevin:   Shannon, I want to ask you about the banks. What do you think they’re likely to do this year and are they really much of an influence on property investors anyway?

Shannon:   Definitely Kevin. We’re in the midst of a credit crunch right now, if it’s not being reported from people in the front line. We’re seeing lots of financial deadlines being missed, a lot more scrutiny, people’s borrowing power reduced by up to a third under the new sort of servicing laws.

Shannon:   It’s definitely already effecting and there’s yet to be the federal government response out of the findings as well. I hope that it’s not an over reaction because really banking’s the archery of the economy and we need it to be strong and we need access to credit. It’s already having an impact.

Kevin:   For those who maybe have been sitting on the sidelines for a while, not necessarily having to raise money, just really sitting with their portfolio, if they’re thinking of doing something and developing that this year, what’s the landscape going to be like for them say if they haven’t really been approached, been talking to the banks for a couple of years? How different will they see it?

Shannon:   There’s going to be a lot more scrutiny on your spending habits, so be prepared for that. Also, they’re going to take into account a higher interest rate. It’s not necessarily that 5% is going to be around forever. The banks are sort of taking into account more and more up to 7%.

Shannon:   If you’d been to the bank a couple of years ago and they told you you could lend say $500,000, you might expect that to come back at around about $350,000 under the new rules that are out there.

Kevin:   Sobering, so be prepared for that. Shannon, I want to take you in another direction now. I know you’re Brisbane based, but can you tell me, you’re on record in this show of having said that you think the Brisbane’s going to be the benchmark for the future. Why do you think the Brisbane market is going to be a hot market this year?

Shannon:   It just hasn’t had the boom so it’s not going to have the bust that some of the other states there, and I think it shows a lot more value. It’s not overpriced. With Brisbane you’ve really got to include the gold coast and sunshine coast in the southeast corner. You’re seeing people moving back and you’re seeing people be part of the market, in a lot more confidence.

Shannon:   When people see end prices going the wrong way what happens is you get a bit of a buyer’s strike. What was a certain price this week is actually cheaper next week, so it doesn’t actually encourage people to take part because they might, if they wait, get it for a cheaper price. That’s what you’ve got in some of the southern capitals right now, whereas in Brisbane the opposite is in fact true for our stand alone properties and houses. It might cost you more if you don’t take action soon. That’s what’s driving a lot of the activity.

Kevin:   That’s an interesting insight. If you sit on your hands you’re likely to lose and it’s probably going to cost you more. I guess a valuable lesson there for any buyers, if you find something that you like and it ticks all the boxes, make sure you move on it, or at least attempt to.

Shannon:   Yeah definitely.

Kevin:   Shannon, just in closing, I want to ask you, I always like to ask this question of people like you before we finish our conversation. A lot of take home value for our listeners, but the most important lessons, or even if it’s only one of them, that you’ve learned about property investing in your time?

Shannon:   I think just take the long-term. It’s really a long-term activity. You can’t really be flipping with the entries and exit prices. If you’re about to get into property for investing reasons make sure you’ve got the right character and the right mentality for it because if it’s something that you turn around and going to sell in two years time because it hasn’t been a get rich quick for you or something, be prepared for some significant losses. I’m talking stamp duties and commissions and if the market’s moved against you. That’s not for everyone.

Shannon:   You see it all the time where investors come in and they make and crystallise massive losses just because they’re impatient really. Have that long view in mind and also remember owner occupiers drive the market not investors, so if it’s a good house to live in it’s likely a good investment.

Kevin:   That’s some great advice. Just in terms of what you just said right at the start there about understand, it’s all about the why isn’t it? Do you ask why you’re doing this. Really understand what it is and if it’s for a quick turnover. If it’s for quick cash maybe this is not the right vehicle or the time for you to be doing it Shannon?

Shannon:   Definitely. When we have to talk exit strategy, and especially in a short time frame, I get really nervous because I can’t control the market. No one can. For me my exit strategy is to hold them as long as I can and over time the forces of capital appreciation work it’s way and I have very little effect on it. I can pick up the paint brush but that’s about all I can do.

Kevin:   It is something that I’ve learned over the years too, and that is that people that have made a lot of money out of real estate are the people who’ve been prepared to buy well and then hold on. It’s over that period of time that you actually make your wealth.

Shannon:   Yes, you don’t have to look that smart. It does the work for you over time.

Kevin:   Wonderful stuff. Hey Shannon, thanks for your time. I look forward to talking to you during 2019 and all the best.

Shannon:   Thanks for having me.

Lessons from investor award winners – Sarah Megginson

Kevin:   Well, as you’d be aware, the latest edition of Your Investment Property magazine is out now. The February issue is out on the streets. And inside that, three awards for investors: strategic, new, and renovation. To talk about those, and we now know who the winners are, because the publication is out, Sarah Megginson, who is the editor of Your Investment Property magazine.

Kevin:   Sarah, thanks for your time.

Sarah:   Thanks, Kev. I’m always excited about this issue, so I can’t wait to chat.

Kevin:   Yes, and rightly so, too. Some great awards going to some wonderful investors. Can I just ask you, Sarah, in reading through or going through that judging process, were there any themes that emerged, something you notice that they’re all doing?

Sarah:   Yeah. I think it’s really interesting. For these awards, we have an independent panel of judges, as you would know. You’re one of them.

Kevin:   Yes.

Sarah:   At the magazine, we review all the applications before we send them on. I think one of the things that really stood out to me is the fact that all of the investors were committed to taking action, and they were moving forward with their goals, regardless of what is happening in market forces. This is something … I’ve been writing for YIP for almost 12 years. Through that time, I’ve seen the GFC, mining boom, mining bust, Sydney boom, Sydney correction. So many ups and downs. I think that’s one of the things that really stand out to me with these investors is that they know to expect that, that there’s going to be down times, there’s going to be up times. And you have to have a holistic strategy that sees you through all of these different market forces, so that you can have success.

Kevin:   Just in your conversations with them, Sarah, did they raise any concerns about the property market for this year, 2019?

Sarah:   Well, I don’t think any of them were particularly concerned, but they all have their own risk mitigation strategies in place. I mean, one of our investors, our strategic investor of the year … and our strategic investor is someone who’s a long-term investor … he sees nothing but opportunity in the year ahead. He’s actively doing deals, at the moment, where his says he can get great value, because everyone else is a bit cautious, so he’s able to negotiate really hard and get some instant equity in the deals he’s doing. I think the mindset of these types of investors who are doing really well, they are able to take action, and willing to take action, and move past all of the negative sentiment.

Sarah:   There is, of course, the realistic side of it is sometimes it’s hard to get finance in this market, even if you really, really want to move forward. Sometimes, there are physical or boundaries there you can’t cross, because they’re outside of your control. But I think the overall theme or message that these investors are kind of saying is that you’ve got to continue forward with your strategy, have a goal, and if you run into a block, look for ways to go around it. It might be that you can’t invest in the particular area you wanted, so you have to go somewhere more affordable, or you might look at a joint venture, or … One of these winners has started looking at commercial deals, because they have much higher returns, so he was able to get better financing for them.

Sarah:   I think there’s always a way forward. That was the real message that came through with all of these investors is they’ve got really good risk mitigation strategies in place, and they’re always looking for their next step.

Kevin:   Yes. Well, as one of the judges, I must admit I was very impressed with all of the entrants. There can only ever be three winners, of course. But the strategic investor has a portfolio worth 17.5 million. The new investor … I was staggered … amassed 12 properties in just five years. The reno investor created $1 million worth of equity through strategic upgrades. There’s some tremendous reading in there. Just harking back to their experiences from last year, what did they identify were their greatest challenges in what was a fairly challenging year?

Sarah:   Yes. I think last year the challenges for everyone were around finance. Our strategic investor of the year, he looked at some creative ways to get around that, because financing, I think, was a challenge regardless of your position last year. All of the banks and lenders were putting in different criteria, and they were … It was such a difficult thing to navigate. I think even if you were pre-approved for something, and a month later, you went to buy, the goal post sort of changed, so it was a really tricky year in terms of financing for everyone.

Sarah:   I think going through 2019, it’s going to continue to be difficult, but we are starting to see that things are changing there. At the end of 2018, we had APRA lifting, their ban on interest only rates for investors or for banks, so that’s going to help investors get financing again. So, hopefully, these types of challenges are going to abate a little this year, but it’ll be interesting to see it plays out.

Kevin:   Yeah. It was a great move by APRA doing that at the latter part of last year. Interesting to note, too, that in very timely, that in this edition, you’ve got the ultimate guide to how to get a loan when the banks do say, “No.”

Sarah:   Yes, exactly. We had so much feedback, particularly towards the end of last year, from our readers saying they’re really keen to move forward. They want to invest. But the banks are just saying, “No.” Even people who are quite what you would call vanilla, two incomes and for all intents and purposes should be able to get a loan, but even they are struggling. Yeah. We put together a story on what to do if the banks say, “No.” How to avoid getting that no in the first place. But if you do get knocked back, what are your options? Because, that doesn’t always mean that’s the end of the road. There are always things you can do to try and move around that. We’ve got heaps of really actionable tips and ideas in there to help investors get finance in what is a really tricky market.

Kevin:   Yep. Well, great reading, and of course, very inspirational stories in acknowledging the three award winners: the strategic, new, and reno investors of the year in Your Investment Property magazine, which is out right now. Hey, Sarah, congratulations, again, on another great issue, and look forward to catching up with you again soon.

Sarah:   Thanks so much, Kev.

The property ‘hits’ of 2019 – Anna Porter

Kevin:   Looking ahead is something we like to do. Trying to get a crystal ball out to help with what the market might do in 2019, Anna Porter has some very strong views. Anna is a valuer and property commentator from Suburbanite. She is the CEO there and she joins us.

Kevin:   Happy New Year, Anna. I know we’re well and truly into the new year, but it’s the first time you and I have spoken in 2019 so happy new year.

Anna:   You too, you too.

Kevin:   Okay, now you’ve got some very strong views on what’s going to happen in 2019. No shortage of people coming forward to tell us what they think. So what do you think are going to be the hits this year?

Anna:   There’s certainly some hits for this year. Even though there is an overlay of a Royal Commission and we’ve got an election looming, there are some markets that are really well positioned to push through that. So Adelaide would be our top pick for the state that’s going to see the most prosperous growth and rental market for 2019.

Anna:   This is off the back of a huge amount of job creation and projects that are being … the spend into the billions or 10s of billions on some of these projects. They’re not just roads, they’re not just wind farms, they are job-creating projects like the Royal Adelaide Hospital. At $2.4 billion, that’s just not a major project for Australia – it makes it the most expensive single building in Australia – it puts it on the world stage at number seven for the most expensive building in the world at the moment.

Anna:   You’ve got your submarines, you’ve got your frigate fleet which is a $39 billion project. There’s about a decade of work coming out of that. As well as a number of other projects that are going to create thousands upon thousands of jobs. That’s a real underpinner for that market.

Kevin:   Yeah, a real turnaround in the South Australian market on the back of a couple of years ago. All that doom and gloom about the car industry. So it seems to have rallied around, Anna.

Anna:   That’s very true. Even last week of late there’s been an announcement that one of the big players in solar and battery power is taking up part of that old Holden plant there up in the northern section and they’ll be creating another 1,200 jobs through their initiative. So it’s a really interesting time for Adelaide. Adelaide is doing it … They’re smart, they’re doing it the right way. They’re looking at how to create jobs for the future and create sustainability.

Kevin:   Of course one of the big influences for the year is going to be the election whenever it is held the first half of this year. What do you think is going to be the impact of that?

Anna:   Yeah, so it tends to make the market stand still a little bit. Canberra is in particular impacted by that. So we see at the moment Canberra has been very buoyant throughout 2018, which is fantastic. It’s had some good growth, the rental market is very tight. We’ll see a bit of a pause button there for the first half of the year while that election conversation and narrative is taking the forefront. But we see the back half of next year that Canberra will power through and it will go from strength to strength. Because it is at the right time in the cycle, it does have good jobs and good employment, even if there is a change of government. The seat is still there, the job is still there. It’s just who is sitting in it. We usually see Canberra do very well after an election, even though it might sit still in the lead up. But that can create a buying opportunity. If you’re the right buyer, you can get in at a good price and then see the growth off the back of that.

Kevin:   One of the great lessons out of 2018 was the growth of the regions or the potential to get into the regions. So I’m interested to note here that looking outside of Sydney, you’re looking a little further down the road at Goulburn?

Anna:   Yeah, so Goulburn has done fairly well over the last few years. As a major regional hub, and we’re not obviously going to compare it to capital city markets, but talking about regional markets it’s done fairly well but there’s a bit of sustainability there built off the back of Canberra. As people are getting priced out of Canberra, Goulburn is an affordable alternative for them. This market is going to stay nice and steady. We don’t expect it to set the world on fire being a regional area, but it is going to remain steady off the back of what’s happening through Canberra. So that’s a good outlook if you want something that’s a bit more of an affordable buy with that slightly stronger yield position than you’ll potentially achieve in Canberra.

Kevin:   Yeah, it’s an important junction between Sydney and Canberra as well. Let’s take you across to Western Australia; Perth is on your watch list.

Anna:   It is on our watch list. So we’ve started to see after a number of years of negative growth and some real backward trends in Perth, we’ve started to see that really stabilise the last six to 12 months, which is fantastic. Now looking forward into the rest of 2019, there is real opportunity in I think the back half of the year to see that as a good buying area. The growth has stabilised, we’re not seeing much more negativity coming out of that trend.

Anna:   The one thing we’re really waiting for though is that vacancy rate to come down a little more. The vacancy is still a little bit high for our liking. We do see a strong correlation between how the growth trends work and how the vacancy and rental market perform. Once that vacancy comes down I think the right buying opportunity will start to sift through the Perth market. But do be a little careful getting too regional in WA; you do want to be in that real centralised hub. The regional markets are still feeling some of that pain from years gone by.

Kevin:   Mm-hmm (affirmative). You make an interesting point too about Tasmania, which we’ll come to in just a minute. Before we do that, let’s talk about Melbourne. You reckon there’s a bit of a sting coming for Melbourne, especially in the metro area?

Anna:   There sure is. Melbourne’s had phenomenal growth, double digit growth, year-on-year for the last probably three years is what our data is showing, thereabouts. So now it’s getting a bit toppy, it’s hitting that ceiling, and we’re going to start to see 2019 be the year it will turn a bit of a corner. So like Sydney has done through 2018 and turned that corner, Melbourne will follow. It will be quick and it will happen very quickly where the market really does come to a stop.

Anna:   For those investors that have looked a bit further afield into areas like Geelong for example, they will probably be a little bit more steady for most of the year. It probably won’t turn as quickly as what we’ll see in Melbourne, because Melbourne right now is starting to have a bit of an affordability crunch. That’s when buyers will come reeling back and start to retract. I think this year’s going to be the year we’ll see that really settle in.

Kevin:   Anna, you say 2019 is going to be the year of reckoning for Tasmania?

Anna:   It sure is-

Kevin:   A lot of people are still predicting there’s a bit more growth there to come? You don’t agree?

Anna:   No, I don’t. The property market has a lot of speculators, and people that haven’t necessarily seen the cycle for years and years and decades gone by and done the research. They just look at the last 12 months. Even some property investment gurus so to speak look at the last year and at the beginning of 2017 and 2018 they were saying, “Wow, this is cheap. You buy into Hobart and you pay 250 or 260 for a property and you get 320 a week rental return. What could go wrong?” What that’s created is an influx of interstate investors. Not migration or population growth. The population growth for the last year has only sat at about 1%, which is abysmal.

Anna:   So they’ve got a lot of interstate investors driving prices up, which has created about an 8 or 9% growth for the year, depending which data you look at. 8 or 9% growth. So everyone is thinking, wow, this is the story coming true. This is the good news story. But it’s underpinned only by investors. It’s not underpinned by the local market. It is certainly not underpinned by job creation. The research is showing for every five people that will migrate to Tasmania, there will only be one job created. So a lot of the projects on the table are only concept and political talking points, they’re not going through to actually turning ground in terms of projects. They’re not job-creating a lot of them. There is a real lack of those fundamentals that create a good property market, like population growth, migration drivers, employment drivers. They’re missing.

Anna:   I’m likening Tasmania to what the Gold Coast has been in years gone by; it is smoothed and bust and I think the latter part of 2019 into 2020 will be the year of reckoning for Tasmania where we will see that growth undoing because there’s going to be vacancies setting in with the heightened investor activity. There’s going to be a number of distress sales especially if there’s an interest rate rise. Even though it might not be with the RBA but just in the backend with what the banks and lenders are doing, if we see that interest rate component start to go up and vacancies start to settle in, you’ll see people retracting out of that market in a big way. The locals cannot support that growth into the future. The locals are quite sick of all the interstate investors from Sydney and Melbourne flocking in and pushing their prices up. So it will come unstuck.

Kevin:   Finally, Brisbane. What do you see happening there?

Anna:   Brisbane is a great market. Obviously the unit market has been struggling and will continue to struggle. If we saw the likes of a 20% decline or even more in that unit sector in the next year, I wouldn’t be surprised. The same goes for Melbourne and Canberra. Those unit markets are oversupplied, so I’d stay well away. But in terms of freestanding houses within about half an hour of the CBD, those properties are still going to stay fairly steady and will probably see a little bit of growth coming through for 2019. Setting up for a good couple of years ahead. We’ve got the Herston Quarter, we’ve got the Queen’s Walk project. These are billion dollar projects sitting right in that CBD area.

Anna:   Setting aside the oversupplied unit market, the freestanding houses are really going to benefit from the job creation of these projects. They’re not turning around next year, a lot of them are earmarked for 2020 onwards. But the next three to five years, over 2019 you’ll start to end in the right direction. The next few years we’ll see some good growth come though.

Anna:   However, I do warn that South-Eastern pocket, down around Logan all the way through to Ipswich; too much supply again similar to Tasmania. The fundamentals aren’t there. The job creation is not there. There’s an oversupply issue, and it’s being driven by investors. Those markets will start to feel the pain coming through very soon. Again, vacancy and the values will start to retract and we’ll start to see some real disconnect in those markets compared to what’s happening in Brisbane proper. So Brisbane proper is a good outlook, but avoid that South-Eastern Queensland pocket, because there will be a bit of a blood bath too come through.

Kevin:   Great outlook on the national market there, Anna Porter. Anna is a valuer and property commentator and CEO of Suburbanite. Anna, thanks for your time.

Anna:   You’re welcome.

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Kevin Turner
kevin@realestatetalk.com.au
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