Time to review your portfolio + The ‘big unknown’ of 2019 + A ‘boom’ – but where?

Time to review your portfolio + The ‘big unknown’ of 2019 + A ‘boom’ – but where?

Highlights from this week:

  • Batten down the hatches
  • The 7 key influencers for Sydney in 2019
  • Affordability will influence market sentiment
  • Property boom in some parts of Australia
  • Interest rates will remain steady

Transcripts:

The 7 key influencers for Sydney in 2019 – Doug Driscoll

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.

Affordability will influence market sentiment – Louis Christopher

Kevin:   Last week on the show we caught up with Louis Christopher from SQM Research for a reflection back on 2018. Well, here we are now in 2019. Louis joins us again. Hi, Louis.

Louis:   Hello there, Kevin.

Kevin:   Much changed in your sentiments from the last week? Or are you still … We spoke last week about your thoughts for 2018, and I guess it’s sort of reflected where you thought we might go in 2019. Is there going to be a bit more pressure do you think on affordability and first home buyers?

Louis:   Yes, look affordability will improve this year. Namely because we think in Sydney and Melbourne in particular the market still has got a little bit to fall yet. So our forecast for Sydney and Melbourne is that prices will fall between 6 to 9% this year. Look, yes affordability will improve. For first home buyers, it will remain a buyers market, most likely. There is a caveat and one x factor here is what the Reserve Bank of Australia does. There is a chance that the Reserve Bank may well cut rates in our view, or there may well be other relief from the market in the form of perhaps some looser lending by the banks once again. We think that’s probably more of a remote chance, that the greater chance is that the Reserve Bank will eventually respond to this downturn and they cut rates. We will see, of course.

Kevin:   Of course, the big unknown is what’s going to happen towards the middle of the year around May when we have a federal election. If in fact Labor get in, you touched on this last week in the show, Louis, Capital Gains Tax and negative gearing are both going to be on the agenda, clearly.

Louis:   They are. Your listeners should be aware, though, that okay if Labor get up in May we will not see on the election night the repeal to negative gearing concession.

Kevin:   That’s right.

Louis:   What will likely transpire is that Labor will call a mini-budget, probably in the second half of the year maybe around August, where they will announce the measures. Even then, I don’t think the measures will immediately kick in. It’s likely that they will want to give the ATO some time to adjust. We think there’s absolutely every chance that Labor will bring these measures in some time, maybe say 1 July, 2020. That’s our bet. Of course, you just never know with politicians what they could do.

Kevin:   Yeah, we don’t also know what the outcome of the election is going to be, just how close it’s going to be as well.

Louis:   That’s true. It probably will narrow up as we get closer to it. But of course, I’m a housing analyst so I need to look at current probabilities as they stand and you’d have to say the probability is still with Labor at this point in time.

Louis:   So our forecast … We’ve run a number of scenarios and basically three of the scenarios … Three of the four scenarios were that Labor would get up. One of them is that Liberals manage to hold onto power. But one of the key variables we think is, okay what the Reserve Bank of Australia may well do. Will they respond to this downturn? Or will they let it run for awhile yet.

Kevin:   What’s your view?

Louis:   Our view is that there is an increasing probability they’ll respond later in 2019. Look, this downturn will have an impact upon the greater economy, and at that point in time if the Reserve Bank of Australia sees there is an increasing recession risk, that’s when they’ll respond.

Kevin:   Mm-hmm. We’ll, we’re very early in 2019 and I guess the banter is going to really start to ramp up now as we head towards the election. It’s going to be interesting to see what people do, how they respond to the likelihood of a Labor government, whether we’re going to see a rush on property to try because they’re foreshadowing the fact that if they do bring something in, it’s going to be grandfathered as well.

Louis:   That’s true. And it may well be a little bit of a run, but we think it will be tempered because we think many investors will see through that run, that potential run. Of course, let’s just keep in mind that APRA still have quite a clamp on property investors with the restrictive lending. So I just don’t know whether it will be such a great surge. But it would not be without precedent; there was actually a surge back in 1999 and 2000 just prior to the GST on property. So yeah, it could happen. I think it will be tempered though with people looking through the other side of this in terms of once it’s actually enacted.

Kevin:   Okay, this time next year let’s fast forward to the start of 2020. What do you think we’re going to say about 2019? Or is it going to be pretty much what you just gave us?

Louis:   Well, I think we’ll be talking about effectively another year where prices have fallen in Sydney and Melbourne. But potentially other cities not looking too bad; Perth bottoming out, Brisbane being flat lined overall, Adelaide being more or less flat lined, and Hobart having another good year albeit a slower one. Canberra doing … Slowing down overall but not falling in prices.

Louis:   Then we’ll be talking about effectively what it will mean for negative gearing to be repealed mid-year, potentially a little bit of a minor surge happening. So 2020 it’s really too hard to call at this stage of call, but there are certainly some key variables on the horizon that we’ll be increasingly focusing our attention on.

Kevin:   Well, it’s going to give us plenty of fodder to talk about during the year no doubt, Louis, and we look forward to sharing your thoughts with our listeners as well. Thanks again for your support, and look forward to working with you this year. Thanks, Louis Christopher from SQM Research. Thanks, Louis.

Louis:   Thank you, Kevin.

Property boom in some parts of Australia – Simon Pressley

Kevin:   As we continue to look at where we’re headed in 2019, this being the first show of the year, Simon Pressley from Propertyology joins me and last week we had the pleasure of having him in the show to talk about the highlights and the lowlights of 2018. Simon, you’re famous as far as I’m concerned anyway for your predictions on what was going to happen in Hobart, being the first one to actually come out, and I know a few people have claimed that, but you in fact were the first one on record to talk about what was gonna happen in Hobart. And what are your thoughts about this year for the property market?

Simon:   Well 2019, I guess every forecast I’ve read so far about the year ahead has just been full of doom and gloom. And I, I don’t want you to think I’m weird here, but I actually see a number of factors coming together, Kevin, there are parts of Australia that we can start to anticipate, we may actually see property booms in parts of Australia. Might not be directly in 2019, it might actually be six months. It is far from doom and gloom. And I think a lot of that doom and gloom commentary has come from what’s happening in Sydney and Melbourne, which isn’t pretty, but that’s two cities. Australia is actually made up, there’s 175 towns and cities that have got a population of 10,000 or more, 175. But yet so often what gets reported about Australian real estate is a reflection of what’s happening in the moment in Sydney and Melbourne.

Simon:   We need to be very very careful about making these really big decisions with expensive assets such as property based on consensus. Consensus is often grossly wrong. You’ve mentioned Hobart, Kevin. In 2014, no one had anything positive to say about Hobart and those who followed that consensus missed out on a wonderful opportunity. In 2011, 8 out of 8 capital cities declined in value. No one was having anything positive to say. 18 months later, Sydney and Melbourne had started a property boom. In 2016, everyone was saying Sydney and Melbourne could never be over supplied. Fast forward 18 months, everyone knows they’re over supplied. And regional Australia, year after year, people say property markets just don’t grow in regional Australia, or there’s no jobs in regional Australia. 200,000 jobs have been created in regional Australia in the last two years and they have been unquestionably the best performed property markets in Australia in 2018.

Simon:   So be very careful listening to consensus. The future is a rosy one. The key at the moment is APRA. Someone needs to talk some common sense into APRA. You can’t have a healthy economy without the availability of funds and they’ve made that tight. People can borrow money, but there is some really good quality credit that are getting declined. So that common sense will prevail eventually with that, and when it does, large parts of regional Australia, I will use the term, a boom is possible.

Kevin:   I guess we also have to be mindful of how we need to, not so much protect, but foster the investor. Make sure that they’ve got an environment where they’re comfortable to invest because we need that kind of stock going forward. Not everyone wants to buy a property.

Simon:   Yeah that’s true. We need confidence, and there’s every reason for us to be confident. I read a great speech by the reserve bank governor, Phillip Lowe only a couple of weeks ago and why it was such a great speech is he reminded Australians that it is not as bad as what was reporting on a daily basis. I think whether you’re a first home buyer, whether you’re an investor, whether you’re looking to renovate, the public needs to be reminded that things actually aren’t that bad. Our unemployment rate is now 5% and falling. That’s low. We’ve had two consecutive calendar years where we’ve created more than 300,000 jobs in a single calendar year, two consecutive years. That doesn’t happen very often. It might have only happened two or three times in Australian history. We’ve two consecutive years of that. We’ve got population growth of consistently more than 350,000 people per year. We’ve got housing supply a surplus in two cities, but our other capital cities and most of regional Australia aren’t over supplied and in fact in a lot of cases are really tightening. We’re seeing a significant reduction in things like vacancy rates and building approvals.

Simon:   The economic story is a positive one, it is an improving one, and that’s a key fundamental for a strong property market. You know in this calendar year, Kevin, we will see our first federal budget surplus in ten years. That’s a big achievement. If we think about the economic troubles we’ve been through post GFC to get to that point is a big achievement for this country and something that we need to be celebrating. There is a tourism boom world-wide that Australia will continue to benefit from. There’s an agricultural and advanced manufacturing story which is very exciting for job creation.

Simon:   So there are some really strong fundamentals for those who are prepared to actually focus on those and not just the the here and the now.

Kevin:   So Simon, could I read into your comments, that you’re fairly confident about 2019?

Simon:   I am, but obviously the best way to get people to think about this is the Sydney and Melbourne booms, those who made the most money were the ones who actually looked at the fundamentals and backed their judgement on that and they would have bought in say 2012 when the market wasn’t growing, but the underlying fundamentals were strong. Those who did that, they made the money. 2019, those who do that same process and look at the underlying strengths in locations and buy then, when that growth occurs, late 2019, 2020, they will benefit 100% of that. Our 8 capital cities, they’re not going to see an enormous amount of price growth in 2019. But it’s definitely not doom and gloom. I think Sydney and Melbourne, I don’t anticipate a crash, because their economies are too strong, but we need to understand that it’s the APRA tightening that has probably been the cause of about 7% of Sydney and Melbourne’s price declines.

Simon:   APRA credit tightening is not going to be there forever. We’re going to have a lot more problems in property markets if that continues, so that will go. But what we really need to understand the economic strengths behind things and focus on that. Perth has got quite an exciting outlook. It’s had a terrible run the last ten years. The economic stuff that’s coming out of western Australia is exciting. Just this week I read that mining boom mark II is about to unfold over the next few years. So don’t be surprised at all if two, three years now from now we’re hearing that Perth is Australia’s best performed capital city property market. Regional western Australia, Queensland, New South Wales and Tasmania have a very exciting outlook. Not in 2019, but in 2010, I couldn’t rule out double digit price growth in places like Brisbane, Adelaide, and Perth.

Kevin:   Wow.

Simon:   The benefit from that, you need to be in the market.

Kevin:   In the market, yeah. That’s right.

Simon:   In the market.

Kevin:   Exactly. Think long term, think long term.

Simon:   Fundamentals.

Kevin:   And fundamentals, yeah. Simon, thank you very much. I look forward to your contribution through 2019. Thank you so much again for your wonderful insight. Simon Pressley from Propertyology. Thanks mate.

Simon:   My pleasure.

Batten down the hatches – Jane Slack-Smith

Kevin:   As we head into 2019, Jane Slack-Smith joins me to have a chat about how we should be preparing, what we should be doing right now to shore up our portfolios. Jane, of course, from Your Property Success and Investor’s Choice Mortgages, Happy New Year to you, Jane.

Jane:   You too, Kevin.

Kevin:   Good to have you in the show again. What do we do? How are we going to shore up our portfolios for this year, Jane?

Jane:   Look, it’s batten down the hatches time, I think, Kevin. It’s around looking at your current portfolio and planning ahead. It’s all around cash flow as well. If I look at, for instance, people who have properties at the moment, let’s consider when does your interest only term come up. If it is coming up in the next few years, why not renew that and try to extend it because I think there’s going to be a lot of pressure in the market and a lot of confusion. If people can actually lock in the interest only terms, so they’re not paying 25% greater than they might be paying on a principle interest over an interest only loan, then they can start minimising the cash flow that’s going to start going out for them.

Kevin:   A few weeks in the show, Jane we talked about the opportunities that are there right now, and we’re right in the middle of that period, aren’t we? Even though it’s the start of January, there are still some good buying opportunities.

Jane:   I just love January. People come back from holidays with that fresh uplift. They’re not going to read all the negative papers and get all that negative intent and sentiment that’s in the market. They’re going to start looking at the numbers, and the numbers are 50% of the market are walking away every week from an auction wanting to negotiate and wanting to sell. The confusion is confusing other people, so there’s opportunity to put your offers in there and get into good, quality areas.

Kevin:   You mentioned cash flow earlier in our chat. Is now a good time to be looking after that? What do we do, Jane?

Jane:   Look, it depends on your risk profile. There are types of ways that you can improve the cash flow from your properties because I think there’s no doubt that we’re going into a period of maybe stagnation in the market. We’ve seen that in the last couple of months, and it’s been well-reported on. When we look at cash flow, there might be opportunities, for instance, to use your property as a short-term stay property, or maybe as a multiple occupant or unit dwelling, and actually improve the cash flow. Then there’s always my favourite, Kevin, which is renovation and looking at your portfolio and seeing how you can boost your current property with renovation. Now we’ve just had a student that has put their rent up by $120 a week by doing a $40,000 renovation. They’ve got the equity now that they’ve banked up as well, making at least $2 for every $1 they spend. When the market recovers they can tap into that equity and start it using for their subsequent purchase. In the meantime, they’ve got this buffer built up of an extra $100 plus a week that they can start using to improve their cash flow.

Kevin:   It’s interesting, isn’t it? There are always opportunities. You highlighted this for us just a couple of weeks ago and even earlier in this chat as well. Is renovation still working, and is this a good time to be doing it, Jane?

Jane:   Look, I think renovation is just the catch-all, evergreen strategy that anyone can use. We heard from a student just a couple of weeks ago who sent me a letter thanking me for putting a renovation strategy in front of her. She’s from Perth. They have a house in a street where every other house in the street has gone into a negative equity position, so the loan is higher than the value of the property. Whereas her property, they’ve done a strategic renovation and that allowed them to add equity to the property, so their loan is still below the property value. Even in a dropping market like this, renovation can actually protect you from the negative equity position, but then it can add value to your cash flow because you can put the rent up. You’ve got a better quality property, so you can rent it out. We look at the Sydney market at the moment with the high vacancies, a renovated property where people want to live is a property that is going to rent really quickly.

Kevin:   Is this a time for flipping?

Jane:   Look, I have concerns always around flipping, and it’s no secret. It’s Chapter 13 in my book, Why Flips Flop Sometimes. I think that when you have a market that’s going down, then that pricing pressure of what you’re in sale value that you need to achieve and what you buy it for and all your costs, as they change, the only thing that can actually move is your profit. As the sale price comes down, your profit gets smaller. Having said that, as you and I have discussed so many times, Kevin, there’s markets in markets. The Sydney and Melbourne market might be in decline. We have other markets in Australia that aren’t in decline. For those who do have flipping as a strategy, as always, I tell you please just do your numbers because there is opportunity out there, but it’s something that I’d be very, very wary of in a downturning market.

Kevin:   Well-spoken. Jane Slack-Smith, our guest, Your Property Success and Investor’s Choice Mortgage. It’s always good talking to you. Thanks for your time, Jane.

Jane:   Pleasure.

Interest rates will remain steady – Stephen Sharry

Kevin:   Looking further forward into 2019, joining me now is Stephen Sharry, Editor in Chief. Is it Editor in Chief or Editor and Chief?

Stephen:   No, Executive Editor.

Kevin:   Oh, my apologies. Executive Editor. You’re still the boss though. You boss all those journalists around. Don’t you.

Stephen:   I don’t think so. They tell me what to do.

Kevin:   Oh, do they?

Kevin:   Executive Editor at Property Television. Propertytv.io. Check it out. There is a link on our website to take you there.

Kevin:   Stephen, your take. Last week we looked at 2018 and your view on that. Let’s have a look at 2019. What do you think’s going to happen this year? What’s your crystal ball say?

Stephen:   Well look, I think it’s pretty evident that interest rates are going to remain stable for the year, if not for 18 months, unless something very untoward happens. I think the RBA are being incredibly cautious at maintaining current level of around that 1.5% in the cash rate.

Stephen:   So I think the economy is doing okay. As I said last year, I think we’re going to see some changes in the source of … some of the source of funds. I think the bigger banks are going to pull back somewhat because they’ve tightened their lending criteria. But the smaller banks and the mutuals, and that’s without even going to second tier lenders, are lifting their game and they’re being quite aggressive out in the market.

Stephen:   I think Sydney will continue to soften as will Melbourne. And some are predicting big reductions. I saw one the other day of 20%, Kevin. I’m not sure whether we’re going to go that low. But there’s some tremendous opportunities there for people who want to upgrade and intended to upgrade in that Sydney market, so long as they’re not dependent upon selling an existing house. If they’ve already done that, some tremendous opportunities to save up to a quarter of a million dollars on some properties.

Kevin:   Yes, the report you’re referring to is an interview we carried several weeks ago with a 20% drop in prices predicted by the ANZ Bank. I think, too, we’ve got to remember that the price growth in Sydney, in particular, over the last couple of years has been astronomical.

Kevin:   So it’s really just … it could almost be looked upon as a bit of a correction as long as we understand that those are only two markets, Sydney and Melbourne, there are so many other markets around Australia, which I think you pointed out to us last week in the show.

Stephen:   Yeah, look there are 175 towns in Australia, Kevin, that have a population of 10,000 or more, and we tend to forget about them as small, niche markets. And I think we discussed the Victorian strategy of creating house blocks, etc., further out, but improving infrastructure for connectivity. I think we’re going to see more and more of that.

Stephen:   Look, you know, I think the property boom in 2019 will continue in parts of Australia such as Hobart, etc. Brisbane will stay stable. But I really think that some of those closer regional centres are what we’ve got to look towards for 2019.

Kevin:   Yeah, that figure you mentioned of 175 towns in Australia with a population of 10,000 or more is a fascinating figure. And we featured that in a video with Simon Pressley from Propertyology in the show only a matter of weeks ago. They do some very interesting insights. And he is a champion for the regions, and I know that you mentioned that in last week’s show as well.

Kevin:   Stephen, can I ask you about interest rates? ‘Cause you mentioned they’re going to remain reasonably stable. I think we tend to lose sight of the fact that that’s a good indicator about where the market is. And any increase in rates, although we might bemoan that fact, is already … would be an indication that the economy’s actually doing quite well.

Stephen:   Well the economy is moving, yes. But I think what’s keeping the rates down is the fact that we’ve got very low unemployment currently, and low inflation, relatively. So inflation usually indicates that the market is starting to move. We haven’t seen that as yet. And we’re tied more and more to the international markets, particularly the US. We’re seeing some huge corrections at the end of 2018, and where they’ll move in 2019 will impact heavily on our economy, particularly with the trade war between China and the US.

Kevin:   It’s going to be fascinating to watch because all the indicators as you just correctly pointed out, are good. Yet consumer confidence is down, and we can see that in the run to Christmas that we had late last year when the conversion rates at auction were so low, particularly in Sydney and Melbourne.

Stephen:   But I think also with 2019 in the early stages, the upcoming election has a huge influence on attitude. And there’s a little bit of uncertainty. Although in some people’s mind it’s a lay down misere, Kevin, as to who’s going to win. But certainly lead-up to elections do tend to slow down some industries a little bit, but they, more than anything else, they do change sentiment.

Kevin:   Stephen Sharry, who is the Executive Editor for Property TV. Propertytv.io, check it out. It’s a link on our website. Stephen, thanks for your time.

Stephen:   My pleasure, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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