06 Jan The 7 key influencers for Sydney in 2019 – Doug Driscoll
Sydney, being the biggest market in Australia, is going to play a big part in how we ‘feel’ about property this year. Doug Driscoll from Starr Partners runs through the 7 key influencers he sees ahead for 2019.
Kevin: We focus very much on the markets of Sydney and Melbourne. No doubt, we need to because they are the two major markets. What’s going to happen to one of those in 2019?
Kevin: Let’s have a look at the Sydney Property Market. According to a leading real estate CEO, Douglas Driscoll from Starr Partners. He’s going to walk us through what he believes is going to happen this year. Doug, thank you very much for your time.
Douglas: No, thank you for yours, Kevin.
Kevin: Okay, now you’ve listed out seven here. We have covered, often, and I guess we’re aware that politics is going to play a big influence this year, particularly if we have a change in federal government, Doug.
Douglas: Absolutely. Obviously, with all these things, it’s crystal ball time. Absolutely, I do think politics will have a major impact and influence on the market in 2019. As you just alluded to, look, we’ve got the federal government forthcoming. By no means, is that a foregone conclusion. I think that’ll be a fairly keenly fought contest. Given what Labour are proposing, in terms of the changes to the negative gearing concessions, well it really is difficult to predict, as to what impact that’ll have on the market, if indeed they are successful.
Douglas: Having said that, you know, it’s not just the federal government, sorry, federal election that’s coming up. It’s obviously, we’ve got the state government that’s up for election, as well. It really is going to be an interesting time. What tends to typically happen though is when there’s uncertainty in the air, people have a propensity of actually doing nothing and sitting on their hands. Certainly, in the build up to those two elections, I can see people almost adopting a wait-and-see policy.
Douglas: Don’t forget, we’ve got the rollout of the recommendations from Royal Commission, of course. That is a genuine balancing act. What we need to look at there is the government needs to very much lean on the lending institutions and ensure future prudence and ensure they’re more responsible. But, they obviously have to make sure at the same time, that they maintain certain lines of credit. If they squeeze them too much and are a bit too Draconian, if you like, then it’s going to be increasingly difficult for people to actually borrow money.
Douglas: Look, for the first three to six months of the new year, I think it’s going to be a real challenge. I certainly think politics is going to have a major, major impact.
Kevin: First home buyers. We saw them get some leg up, or attempt to get a leg up in 2018. Is that going to continue in 2019? Do you think there’s support for first home buyers?
Douglas: Yeah, very much so. It’s funny because they were kind of the outcasts for a long period of time, certainly when we saw so many investors in the market. I think if there’s any kind of good news about the market at the moment, it’s that we are seeing a rise and rise in first home buyers. Certainly, as you said, 2018 was a really good year for first home buyers. I actually expect this year to be very much the same.
Douglas: It almost is a perfect scenario. They’re not competing against these investors as they once were. Obviously, money is still relatively cheap. It’ll be a little bit more difficult to get ahold of, of course. Of course, they’ve got the stimulus and the concessions.
Kevin: You mentioned the banks earlier, too, bank valuations. Banks are becoming a lot more prudent. Do you see that as being a lever in 2019?
Douglas: Yeah. Look, I actually think what’s interesting is that I think the banks were a little bit too hard and fast, in certain regards. I think they probably should have always been as prudent as they’re now encouraging them to be. I certainly think the valuations are going to come in very low this year. I think they’re going to be low-balling a lot of buyers, no question about that.
Douglas: Also, it’s going to take an awful lot longer to get your hands on money. I think the approvals are going to stretch out to, up until recently it was a few days, now it’s going to be, I think, a few weeks. Again, a lot of that hinges on those findings from that Royal Commission and how they’re rolled out, of course.
Douglas: But, for anybody who is going to struggle, don’t forget, there’s no harm in asking for a second opinion. Or indeed going out and doing your own due diligence and looking to get some comparative evidence. There’s a lot of people who have bought off the plans of 12, 18 months ago. A lot of those properties, now, are nearing completion. A lot of them are going to be anywhere in around 10% lower than the purchase price at the time. Getting the extra money together is going to be very, very challenging. If you haven’t got a savings account to be able to raid, then you really are going to work with the banks, and where necessary, try to get that second opinion or provide that comparative evidence.
Kevin: Talking about money, rates of course, have been very stable for quite a long time now. Do you see that continuing?
Douglas: Absolutely. Look, I mean they say that a day is a long time in politics, or indeed in the economy. I certainly think, looking any further ahead than probably three to six months, is somewhat foolish. I don’t see any upward movement in rates. In fact, now there’s kind of whispers that we may even see a rate cut in the first half of next year. I think it’s still a good time. If we did see a rate cut next year, I would be very surprised if we saw that get passed on by the banks, by the way.
Kevin: People have been paying down their mortgages, quite aggressively, on the back of the fact they’re not quite sure what’s going to happen. Do you see that continuing, given the fact that there may be a rate cut?
Douglas: Absolutely. I think that anybody out there who has a relatively large mortgage, but yet has disposable income, my advise would be, you know, make a serious dent in that debt while they can. In terms of the median long-term, there’s only one way rates are going to go. Putting 2019 to one side, we will see rates, eventually, rise again. I think there’s a lot of people out there who are kind of geared up to the eyeballs. My advise is, if you have a disposable income and you can do it, you should be doing it. Once rates start to rise, it’s going to be painful for a lot of people, I think.
Kevin: Yeah, we’ve been watching closely the auction success and clearance rates, particularly in Sydney and Melbourne, which is really the benchmark for what those two markets are doing. We’re seeing clearance rates fall down, now, below 50%. Is that going to drive more people away from auctions? Do you think they’re question them a lot more?
Douglas: Yes, but they shouldn’t. I think we’ve almost been spoiled, let’s face it. We were seeing clearance rates of some 80, 85%, every weekend almost. Certainly in 2016, 2017. Obviously, 2018, we saw that come back just below 50%. I certainly think that people shouldn’t be scared off from the auction process. It is just that.
Douglas: Don’t forget that that is only a snapshot of the market for that particular moment in time. Those reports that you see in the newspapers every Sunday morning, what they don’t factor in is all the properties that sold prior to auction day. Indeed, the properties where price is negotiated thereafter.
Douglas: We have an office at the moment, that actually on auction day itself, their clearance rate is only about 35%. If you take into consideration the auction process, so the week or two prior and the week or two post-auction, that actually would be about 65%.
Douglas: I do believe that a lot of people will shy away from that process, for fear of embarrassment. It’s a very public affair. The neighbours and everyone else, the world and his wife, gets to find out what happens. I think the beautiful thing about auction is it kind of gives a sense of finality to things.
Kevin: It’s a sense of urgency. It’s like a date, isn’t it. I think the other factor, too, with auctions, is going to be the tightening of finance and finance being harder to get. A lot of people won’t be able to bid at auction. I think we’re going to see an increase in post-auction sales.
Douglas: That’s a good point, yeah. I fully concur. It’s definitely going to be a different dynamic. It’s certainly how agents adjust to that, and indeed, consumers. I think what we’ve got to let go of is the recent past. That was almost the halcyon days of yesteryear, almost. That was a perfect storm.
Douglas: One of the things that I think must be maintained is a sense of perspective. We literally have come out of what was a, not just a once in a generation, but once in a lifetime market. What we’re returning to now is very much the norm. Money will be more difficult to come by. The clearance rates will drop. There’s all these different factors that we’re going to face that I think are more tantamount to an every day market.
Kevin: What sort of rental returns do you think investors can look forward to? Are they going to be increasing or declining?
Douglas: No, I think, certainly if you’re looking at Sydney, there’s unquestionably better value elsewhere. The only danger there is that obviously, if you’re looking outside of Sydney. Sydney I think, medium longer term is still a safe bet. I think some of these other markets which are kind of promising X, Y, and Z rental yield returns, I believe to be more fickle. For most investors, anyway, their strategy tends to be medium to longterm.
Douglas: Don’t chase the quick buck. Obviously, part of property investment is patience. One thing that we will see, unquestionably in Sydney in 2019, is we will see rental vacancy rates rise. We’ve seen a glut of new apartments being built. There’s a hell of a lot more competition. My advice to any landlord at the moment is be ultra-competitive, when it comes to the price you’re asking for.
Douglas: There’s almost a [inaudible 00:09:55], in many ways, to want to sit and wait and hope for something else. Well, you can be sitting and waiting a long time. Even a few weeks is going to cost you a month’s mortgage, two month’s worth of mortgage, with nothing coming back in. Be ultra-realistic. One of the advantages, of course, is negative gearing does exist and you can utilise it. But be realistic, would be my advice.
Kevin: It exists for the time being.
Douglas: Yes. That’s very true.
Kevin: Well hold our breath. Hey, Doug. Doug Driscoll, who’s the CEO for Starr Partners. Doug, thank you so much for your insight. I appreciate it.
Douglas: No, my pleasure.