What will put the brakes on the market in 2017 + Where the smart money is going + Patience and long term thinking will be essential

What will put the brakes on the market in 2017 + Where the smart money is going + Patience and long term thinking will be essential

 

Housing affordability and the high cost of relocation will see a lot more people opt to stay put and renovate according to Cherie Barber. Cherie talks about the renovation trends we will see in 2017.

Josh Masters says that Sydney and Melbourne markets are likely to slow down in 2017 – but by how much and what are going to be the areas to invest in next year? He tells us.

With banks tightening up on lending, especially to investors, finance is likely to be the ‘x factor’ in 2017 according to Michael Yardney. Michael discusses where he sees the smart money going next year.

Noel Whittaker says he is continually shocked at the prices some people are prepared to pay to get into the property market. He questions if it can continue and says he is witnessing a bigger separation between the ‘haves’ and the ‘have nots’.

Patience is a virtue especially if you want to buy property next year. Patrick Bright has some advice about what he sees will be the trends next year and where he will be investing.

President of the Real Estate Agents Buyers Association thinks that successful investors will need to curb any short term thinking next year because they will need to start thinking about where the best returns will be in the next 10 years not just next year and the year after.  He tells us where and what he will be investing in next year and why.

 

Transcripts:

Sydney and Melbourne set to slow down – Josh Masters

Kevin:  2017 could just be the year that we see Sydney and Melbourne markets slow down. That’s according to Josh Masters, who joins me.

Josh, you don’t have a continuing confidence in those two cap city markets?

Josh:  Look, I think there has been a lot of growth. Over the last four years, we’ve seen extensive growth over both those capital cities, but it is really unprecedented to this level. While there are some predictions from SQM: Louis Christopher came out and said we’re probably going to see another 8%, 9%, 10%, 11% come into these markets

I think that may be true on the back of low interest rates, but it’s going to be very patchy, and I think it’s going to be really focused on the affordable points in those marketplaces, because people just can’t keep paying these sort of prices.

Even though interest rates are at current lows, wages growth hasn’t really done anything for some time, so there is only so much that we can pay out, and they are looking for value right now.

Kevin:  What do you see as some of the other challenges for property investors who want to continue to grow their portfolio next year?

Josh:  I think overall, it’s going to be very patchy across Australia. Investors are going to have to be very savvy with where they’re putting their money, obviously. The West Coast is still suffering a bit on the downturn from mining, Perth and Darwin.

Brisbane has been one of those cities that we’ve all been watching very avidly, hoping that we’re going to see some growth, but again, we’re really only seeing growth in the owner-occupier market in the housing market, which has been quite consistent and quite popular. I actually think the owner-occupier space is probably a key area for us moving forward into next year.

We’ve also seen some of the smaller cities coming up: Canberra, Hobart doing exceptionally well coming off from the bottom. Even though they are very small markets, so there is a higher element of risk there as opposed to your larger metros, for those people who are willing to get into those markets, they may be able to cherry-pick some of the growth that will happen in Australia in the next 12 months.

Kevin:  What do you think will be the standout states? We’ve seen WA and Northern Territory really struggle in 2016. What do you think will be their story at the end of 2017?

Josh:  I always liken the market to an ocean liner. You can invest in the stock market and it’s like sitting on a jet ski – you zip up and down – but the ocean liner is the property market. It takes a long time to get going, and it takes a long time to slow down.

It’s the same with Perth and Darwin. Even though we’re looking at quite high vacancy rates there, high unemployment, the market is not doing very well. It’s going to take some time to turn around, and we certainly haven’t hit bottom.

So, I don’t foresee those states doing much better in the next 12 months. Fingers crossed, we will see them bottom out, but I don’t see an uptick in those western states.

Kevin:  What do you think about the type of investment property people should be looking at? It’s very simple to say between units and houses, but do you have a preference?

Josh:  I get that question asked often, Kevin. I think people throw them all into the barrel and say, “It must be a house or a unit.” It really depends. For example, if you go to the outer areas of Sydney, I’d be looking at a house, because I’m aiming for investors. The predominant market out there is housing, and that’s what renters want.

However, if I come into the inner city, the inner 10-kilometer radius, I’m going to be looking for affordability, something that renters want to get into at a reasonable price, and it has to be units. I just can’t afford to get into houses at that level.

I don’t think the house or unit conversation is that relevant for investors these days. It really depends on what their affordability is and what is attracting investors in that particular marketplace where they’re looking.

Kevin:  I’m talking to Josh Masters from BuySide.com.au.

Were there any surprises for you during 2016 – things that you didn’t see coming, or anything that stood out for you that we learned from?

Josh:  I think we’d all have to stand back and say that we didn’t expect Sydney and Melbourne to continue the way they have, but that really has been on the back of this low interest rate environment. People simply have more money in their pockets to spend on mortgages, which obviously Australians love to do.

From a professional point of view, one of the things that we have seen is on the rental market – and we do predominantly focus on investments. The rental market in Brisbane and Melbourne inner CBD areas, as we know, high unit supply, oversupply coming into the marketplaces.

We really saw that affect the rental market even out to a 10-kilometer radius, attracting a lot of renters into the inner CBD areas because they could get a lot of stock there at a very affordable price, and it’s really affected the vacancy rates all the way out to that 10-kilometer radius.

We’ve seen vacancy rates – especially in Brisbane – go from 2% to 3% across the board within that circle. I think that was really unexpected, because we were looking at good, solid townhouses that were performing well, and now they’re looking at three- to four-week vacancy rates.

It does really hammer home how much unit oversupply can affect particular markets. Now we’re starting to see a little bit popping up in Sydney as well, in the Hills District and working down to Parramatta, especially in Mascot and the Zetland area, as well.

Kevin:  Fast forward to this time next year, 2017 at the end, at Christmas time, if we’re talking again, what do you think you’ll be saying about the year that has just gone, Josh?

Josh:  Even though we’ve had the low interest rate environment, I really think Sydney and Melbourne will be topping out coming into 2017. I think there will be some discounts on inner city apartments coming.

We all know the oversupply issue is there. It is becoming more predominant coming into 2017 and especially 2018 when a lot of that stock will be released. So, I think we will see some discounting in that area.

Personally, for me, I think the outperformers will be those owner-occupied stock in the affordable states. Brisbane is definitely on the cards for us. We’re seeing some really good interest coming there from the affordability point of view and especially from the owner-occupier market. And potentially Canberra and Hobart moving forward, although they are the smaller states.

Kevin:  Any particular areas, say, in Brisbane that you’ll be looking at?

Josh:  Definitely. We’re particularly focused on that 5- to 10-kilometer radius. We are looking in the north and south side. To give you some of the juicy suburbs, Stafford Heights we’re very keen on, and Kedron. Down in the south side, we’re looking at Tarragindi – very popular down there – Holland Park West, even to Camp Hill, those places that have great owner-occupier stock that is still affordable for people from Sydney and Melbourne looking at those areas. They love that sort of stuff.

Even out towards that south-southwestern corridor, out towards Ipswich, there is some great value happening out there and very high yields, so it is very attractive for investors right now.

Kevin:  Good to spend some time with you, Josh. All the best for what’s left of 2016 and into 2017. I look forward to talking to you then.

Josh:  My pleasure, Kevin. Thank you.

Kevin:  Josh Masters from BuySide.com.au. Thanks again, mate. Talk to you next year.

Josh:  Sounds good, Kevin. Thanks.

 

2017 ‘x factor’ – Michael Yardney

Kevin:  According to Michael Yardney, finance may just be the big stumbling block for a lot of investors next year. He joins me. Michael, of course, is a regular on our show – Michael Yardney from Metropole Property Strategists.

Michael, thanks for your time.

Michael:  Hi, Kevin.

Kevin:  Michael, you say that getting finance is going to become difficult. It’s interesting to see that at least one of the banks is really cutting back on lending to investors. Is this behind your concern?

Michael:  It’s a combination of things, Kevin. While interest rates are low – and they may even go down a little bit more considering what’s happening with Australia’s economy – the banks’ serviceability criteria have been tightened.

In other words, investors – particularly investors who have multiple properties – have to be able to service all their loans at highish interest rates – often 7.5% to 8% – and be able to pay off their loans at the higher levels, as if they had principal-and-interest loans.

What that means is the banks are stress testing, allowing themselves some leeway in case the markets change, but it’s going to make it harder for already established investors to get new loans. They may just have to sit tight for a year or two, Kevin.

Kevin:  One of the things that I’m hearing from a lot of investors is that while it is great to get a lot of information – and there is a lot of information available on the Internet, and even through our show, we talk to a lot of people – it’s actually cutting through all that information and deciding what would be best for you. Is that a big challenge for next year, do you think?

Michael:  It’s going to become a bigger challenge because there are so many mixed messages and so many people purporting to know what to do. One of the challenges is not only going to be to find which properties to buy that are going to be investment-grade but also to know who to listen to, who not to listen to, and also which properties not to buy, which markets to avoids.

Because if we just look back 12 years, a lot of the so-called hotspots or potentially strong markets haven’t really transpired, have they, Kevin?

Kevin:  No, they haven’t, Michael. It’s interesting to hear you say there about who you should be listening to. What are the warning signs? Is it that if someone comes out and says, “I’ll tell you how to get 50 properties in five years and you’re going to make $1 million every year” – those sorts of promises?

Michael:  Of course, there are those whole group of spruikers who have got a vested interest, who are trying to sell you either educational programs or their own properties or properties that they’re selling. And of course, there are the property developers and their associated agents and marketers who have a particular product to sell. It’s actually not too difficult to fiddle with figures and make it sound like that particular location is going to do well because of demographics, infrastructure or population growth.

I’d be getting advice from someone who’s independent, who’s unbiased, who doesn’t have a product to sell –and interestingly, someone who’s borderless.

I think over the next year or two, the big change or the continuation of the trend we’ve seen is that Sydney and Melbourne are going to outperform the other capital cities, relative to their own economic growth, their own population growth, their wages growth in those areas and making things affordable.

The other thing is the wealth effect, because those who are already in that area now have more equity than they had a year or two ago. So, I think the gap is going to widen over there next year.

Therefore, speak to advisors who are borderless and who don’t really care where you invest as long as it’s going to be an investment-grade property in the right location.

Kevin:  Yes, it comes down to having a formula. Michael, is there a type of property that you would recommend avoiding? And here I’m talking about things like off the plans, units, or houses in particular areas.

Michael:  In the last couple of years, houses – or properties with land – have actually appreciated more in value than apartments. It’s because, in general, we have an oversupply of apartments.

That doesn’t mean that there are not more people wanting to live in apartments – and it’s a trend that’s going to continue – but at the current stage of the property cycle, particularly in Melbourne, Brisbane, and Perth, there is an oversupply, which is causing a dampening of apartment values, even established apartments. Interestingly, it’s not as obvious in Sydney, where there isn’t that large oversupply.

I’d be avoiding new apartments in the CBD, I’d be avoiding off-the-plan apartments because you’re usually paying a premium, and I would be careful with – I definitely wouldn’t be avoiding – buying established apartments, to make sure that you’re buying them at the right value and the right locations.

Kevin, I think the other area that’s going to suffer in due course is a lot of the new house-and-land package suburbs in the outer suburbs, because there has been an interesting trend. Overseas investors, often the Chinese investors, who were buying off-the-plan apartments are now being led to those outer new suburbs, and there is going to be a whole group of new investors oversupplying those areas.

Kevin:  Where did we get it right in 2016, and where did we get it wrong with some of our predictions?

Michael:  I think those who predicted that it’s going to be the areas where economic growth, wages growth, and established housing has increased in value have done pretty well. The fundamentals haven’t really changed – the fundamentals of supply and demand, the fundamentals of demographics driving property markets, and the fundamentals of local economy driving property markets.

While we all have the same federal government, we all have the same tax schemes, we all have the same interest rates, interestingly, there’s been a huge disparity, and it has fallen back to those fundamentals of local confidence, local economic growth, local population growth, and supply and demand, Kevin.

Kevin:  Michael, it’s been great working with you not only through 2016 but for the many years we’ve been working together. I look forward to chatting to you again next year. This is probably the last chance we’ll have to have a bit of a talk during 2016, so I just wanted to say thank you for all your support and help.

Michael:  Thank you very much, Kevin. I think next year is going to be a challenging year, where we’re going to have a bit of a credit squeeze, so it’ll be interesting talking throughout 2017 to see how that transpires.

Kevin:  Certainly will, and we’ll certainly get your input. Michael, thanks again for your time.

Michael:  My pleasure, Kevin.

 

“They paid how much?” – Noel Whittaker

Kevin:  A look ahead at the market for 2017 would not be complete unless we spoke to our good friend Noel Whittaker, AM, executive in residence, and adjunct professor, QUT Business School. He is an author, a publisher, an educator, and an all-around good guy.

Noel, good to have you in the show.

Noel:  Just an ordinary bloke.

Kevin:  I always value your opinion, Noel. What do you see ahead for the property market in 2017? What are the challenges do you think?

Noel:  I think the biggest challenge for anyone who wants to be into property is finding a good deal. I’m shocked at the prices some people are paying, especially in non-residential. We had a place going at the coast this week that sold for 3%. I think that’s crazy.

I think the biggest challenge is finding a good deal. The old thing about property: you buy well and you add value. I think that’s going to be the hardest thing for people.

Kevin:  What about commercial? Is commercial property a good proposition for next year, Noel, talking about returns?

Noel:  Having been so burned when I got mixed up in a development years ago, I would never touch it personally. I go through syndicates – people like [1:16 inaudible] I like very much. I invest with [1:18 inaudible]. But I would never again go my own [1:21 inaudible] because I don’t like the thought of a two- or three-year vacancy. [1:27 inaudible]. There are plenty of good outfits out there where you can invest in non-residential property using professional methods.

Kevin:  I was shocked this week to read, Noel, that a number of the banks are pulling back on some of their lending to investors. I think ANZ alone, about a $2 billion cut-back in what they’re lending to investors. Is that a concern, do you think, that they’re concerned about the property market?

Noel:  I just think it’s silly. Normally, if you’re an investor, you have a good equity in your own house to start, and also the interest is tax deductible, which means that a lot of the [2:11 inaudible] are taken out of the payments. To me, at least prima facie, an investor would be a much better borrower than a first-home buyer. I just can’t understand what the banks are doing, to be honest.

I also notice that they tell me that they’ve raised servicing requirements to interest rates plus about 3% [2:33 inaudible]. In other words, if rates are currently 4% – and I used to base the budget on if they went to 6% – they’re now adding 3%, saying “We’ll do your repayments on the basis that they went to 7%.” I’m not saying they will, but I think it’s a good thing to do. But they’re certainly tightening up their lending.

Kevin:  Were there any surprises for you during 2016 with the market that you probably didn’t see coming?

Noel:  Where do we start? What we’ve seen is a big move to people wanting to control their own future. About half an hour ago, I read a story about a man who’s from Stanford who’s now invented the American Dream Index, because people talk about the American Dream but they can’t quantify it. He’s just saying it proves that ordinary people are worse and worse off.

What you’re seeing is society moving to haves and have-nots. With interest rates dropping, it left those with assets buying more property and shares. It also pushed up the price to make it harder for people who don’t have them now. So what we’re seeing is the increasing polarization between the haves and have-nots.

They’re seeing it now in Britain with Brexit. We’ve seen it in America with Donald Trump. We’ve seen it here with Pauline Hanson. People are getting sick of politicians and their [4:00 inaudible].

Kevin:  What about fast-forwarding to this time next year, Noel, what do you think we’ll be saying about 2017?

Noel:  2017, this time next year? My friend the economist Dr. Don Stammer says there’s always factor X – what is going to happen that we can’t imagine is going to happen? The thing about factor X is by its nature you can’t predict it.

I would think we’ll see rates will rising a little bit, but I don’t see them rising much. We’ll be approaching a federal election. I think the government will be more talking [4:40 inaudible] but nothing much happening. Hopefully no more changes to superannuation. I just think it’s situation normal; that’s all.

People have to make the best of what they can do. I’ve noticed far too many people worry about things that they can’t control but they don’t pay notice to the things they can control. I think people should be really practicing good budgeting skills because I think the economy is more likely to get worse than better.

Kevin:  Very good advice, as always. We expect that from you, Noel.

Noel Whittaker’s been my guest. Thank you, Noel, and great talking to you. All the best for 2017 and the New Year, and we look forward to talking to you as the year progresses.

Noel:  Here’s to a healthy and happy 2017.

Kevin:  Well done, Noel. Beautiful.

 

Patience is the key to a good property decision – Patrick Bright

Kevin:  The advice coming from Patrick Bright at EPS Property Search is that if you are an investor looking to get into the market next year, be patient; take your time; do your research.

Good day, Patrick. How are you doing?

Patrick:  Well. Thanks, Kevin.

Kevin:  Do you think people are going to jump in a bit too much? Are they getting a bit over their researching do you think, Patrick?

Patrick:  That’s what I’ve been noticing a lot lately. People are frustrated. They’re over-looking. People do make what I call the fed-up purchase, and that’s going to end up being probably a suboptimal purchase because they’ve been looking for a while, the market’s tight on stock, they’re missing out a lot, and that increases the chances of an impatient buy.

Kevin:  What makes a suboptimal purchase, Patrick?

Patrick:  I think something that’s really not going to meet the brief. They start making compromises. They can’t get what they want. They keep getting outbid. You have to stick to your guns. That’s the important thing. Once you set criteria, you need to find that sort of property and obviously buy it at the right money to make the whole thing work.

I think another thing that’s going to become a bit of a challenge for people is financing. The banks are going to be tightening up on investor lending, and I think that’s going to be a bit more of a challenge. They’ve been doing that slowly. They’re looking for more owner-occupiers.

Finding a market to invest in: where do we go in 2017? Where are things heading? Who to trust? I think that’s becoming harder and harder.

Kevin:  It’s interesting to hear you talk about the banks cutting back on investor lending. I read the other day that ANZ bank had pulled back on their book for investors by about $2 billion. That’s a big adjustment. Is that an indication that they’re a bit concerned about the property market do you think, Patrick?

Patrick:  I think it’s just them rebalancing their books as having a decent amount of owner-occupier loans versus investor loans. I think that’s because of the APRA changes that started a couple years ago and all the banks have been having to head that direction.

Kevin:  What are the big opportunities you see for investors? What advice would you have for those wanting to get into the market in 2017?

Patrick:  I think the start is don’t be influenced. I’m seeing a little bit of a resurgence of the celebrity endorsement or the sporting star endorsement. Spruikers use them all the time and they pay them tens of thousands of dollars to get their face on a project. Don’t be influenced by that. That’s something pretty important to know.

Other opportunities: I think people need to decide what sort of an investor they are. Are they a speculator or an investor? I think a lot of people actually think they’re investing but they’re really speculating. For example, buying off the plan is clearly speculation. It’s not investing. So you need to decide what your risk profile is and whether that’s something that you want to do.

There are always opportunities out there. You need to narrow that down, work out what your budget is, and then work out what market you can play in. If you work out your risk tolerance – do I want to be an investor or a speculator? What price point can I play in with my investments?

Kevin:  You mentioned earlier there about that frustration of going to auctions and being outbid. I know that’s been something we’ve heard a lot about, particularly in that Sydney market. What’s on average the number of properties that you’re finding people have to either get involved in or start to negotiate with before they can actually secure one, Patrick?

Patrick:  I’m hearing from people; some people are telling me that they’ve been to half a dozen or more before they’ve secured something. I personally normally probably buy around about a third of what I would go to auction on roughly over the years, but I think over the last 12 or 18 months, it’s been closer to probably 20%.

It’s just gotten tighter because the stock’s tighter and people are bidding it up. We go with a well-researched, sensible limit, and we either buy at our limit or we don’t. So if people are prepared to pay a little premium or even just above fair money, they’re going to own it over us.

Kevin:  I’ve just completed doing a series in the other show we do, Real Estate Uncut – that’s the show for agents – and in talking to a number of the market leaders around Australia, there’s a lot of concern about a drop-off in stock in 2017. Do you think that’s on the horizon, in other words, less choice for buyers?

Patrick:  I hope that doesn’t continue. It’s not uncommon to see a lack of stock for a quarter, maybe two quarters, but we’ve now been having back-to-back quarters for about 18 months with a decided lack of stock.

I know in the lower North Shore, I’ve been speaking to a couple of sales agents from the larger agencies who have staff who track all sales to know their market share and things like that. They were saying to me that just the lower North Shore of Sydney, for example, was down 47% for the first six months of this year on transactions on the three-year average.

Kevin:  Wow. They’re quite staggering figures, aren’t they?

Patrick:  They are. We’re seeing sales agents leaving the industry already. That’s started. You have to imagine you have the same amount of people fighting over 47% less stock to sell, so somebody’s missing out. Some agents are just doing less but still enough, and some aren’t doing enough to even stay around.

I think 2017 will see more of that. If the stock doesn’t free up and we get more transactions, then I think that’ll get tighter. I was playing at a charity golf day the other day and people were ask what you do and you talk about real estate and they go, “You guys have been having a ball the last couple of years.” I said, “Well, you don’t understand, nobody in real estate who I know is actually doing a heck of a lot better than what they were three years ago”

Most people I’m speaking to – successful agents who have been around a decade or more – we’re all generally working harder for similar or less money. It’s just because there’s less stock to transact.

I know for our business, as well, we’re out there working as hard as ever but we’re not actually doing a whole lot more transactions as a buyer’s agent simply because there’s not enough stock to buy and we can’t fulfill the clients’ needs as easily as we would if there were more stock. So nobody really in the industry is thrilled about the situation.

Kevin:  Patrick, if you were looking for a property for yourself to put into your own portfolio, where would you be looking? What sort of property would you buy?

Patrick:  Because I’m a long-term buy-and-hold investor and I am not a speculator, I’m going to buy something that has good fundamentals and is going to have good fundamentals in the years to come. I’m looking for something that’s going to be generally a capital city-based property, something that has good multiple infrastructure options for transport, something that has a view, a good floor plan, ideally a nice outlook – things like those that are a bit unique in the market. That’s what I’m chasing, that sort of stock, personally to add to my portfolio.

I have a 10+ year outlook on everything I buy, so my view is that if the market shut down tomorrow and I could not sell it, would I be happy to own this for the next 20 years? If I don’t answer yes to that question, then I’m questioning why I’m buying it.

Kevin:  Would it be a unit or a house?

Patrick:  An apartment. I have some houses that I bought over a decade ago, but the last decade, I’ve focused pretty much on apartments because that’s where the market’s been heading. We’re going to see more of that.

You look at the Baby Boomers who are downsizing to apartments from their bigger houses, generally they want a three-bedder, or you’re seeing a lot of one-bedders as well where they can have that “lock and leave” Sydney base and they can buy that out-of-town weekender or semi-permanent base and then they have the Sydney pad, or they make Sydney their base usually with a bigger apartment and they make the tree-change or sea-change type out-of-town investment that they use, as well.

I’m always looking for what’s going to be in demand not only now but 10 or 20 years out from today. It’s hard to pick 20 years out, but certainly not hard to pick at least a decade out.

Kevin:  Patrick Bright from EPS Property Search. Thanks so much for your time, Patrick.

Patrick:  Pleasure, Kevin.

 

More people stay put and renovate – Cherie Barber

Kevin:  Just what’s on the horizon for renovators? We could get no better advice on that from Cherie Barber from Renovating for Profit, who joins me.

Good morning, Cherie, and thanks for your time.

Cherie:  Good morning.

Kevin:  I’m keen to hear what you see as the trends for next year. Is renovation still going to be something that wise investors will be doing in 2017?

Cherie:  Absolutely. With housing affordability being such an issue and the high cost of relocating, more people than ever are choosing to stay put and renovate instead, so that’s great.

I do see that there is going to be continued strong demand for quick cosmetic renovations. Unfortunately, a lot of structural renovations these days are becoming a lot more troublesome with council and cost of reports and CC certificate, so I’m definitely seeing an uptake in the amount of cosmetic renovations.

Kevin:  What are the key things to be careful of if you’re looking at picking up a property, renovating it, and turning it over quickly? Are the fundamentals good for that right now?

Cherie:  Yes and no. The buy, renovate, and sell strategy, it’s not particularly a very good market. Again, when the prices rise, the buy, renovate, and sell strategy fizzles out a little bit, so to speak.

There’s very strong interest in the buy, renovate, and rent strategy right now. Again, housing shortages, tenancy shortages, there is always good demand for tenants. So yes, definitely the buy, renovate, and rent strategy is the winning formulation for 2017.

Kevin:  Are you finding that any particular markets are better than others in Australia, Cherie?

Cherie:  I think a lot of markets are still really good. Obviously, cosmetics don’t tend to work well within 20 kilometers of the CBD. Outside of those areas will work, 20+ from any major CBD.

Regional areas will work okay, but it’s very much suburb-dependent. As we know, Kevin, renovations don’t work in every single suburb, so you have to be selective and choose the suburbs that are going to get you good growth potential as well, because that’s a big thing for renovators.

A lot of renovators buy a property, they get in and renovate it, they’ll get it revalued, or they’ll flip it. Most people are getting the properties revalued, and they do rely on getting good capital growth so that they can refinance into that six or twelve months or two years later, whatever it may be, and then leverage that equity as the deposit to go do project number two.

Kevin:  I know that you help a lot of people around Australia – and have done so for many years – get into the renovation market. Has the profile of the typical renovator changed, Cherie, the people who are coming to you for advice?

Cherie:  Strangely enough, it’s all sorts of people. You have young people, young property guns. There are a lot more people who are educated on property these days, so we’re definitely seeing a very broad market – young people right through to people as old as their 80s, and I have no problem with that. I think anybody at any age can renovate or do anything in property, so it’s good to see.

And obviously, a lot more women coming through the renovation ranks. At the moment, 70% of my students across the country are female, so it’s an interesting step.

Kevin:  What do they bring to the renovation skillset that may be males don’t, in your experience? Is there any way to define that?

Cherie:  It’s definitely not a Battle of the Roses. The reality is if you’re a female at a renovation site, you need men on site; they have physical strength that we just don’t have as females. But what I do think works well for women is our organizational skills. We are born multitaskers.

That’s not to say that men aren’t, but women tend to be particularly good at this. And we all know that on a renovation site, the key is how well organized you are and your ability to coordinate many people. Women do really well with that. They also have great skills in design and color as well, maybe more so a little bit than our male counterparts.

But as I said, males and females each bring their own collective skills to the party, so as long as we all work together, that’s what we hope for, a successful renovation.

Kevin:  That ability to manage a project that you talked about there and get all the timeframes right and do all that careful planning, is that one of the big pluses that females bring to this?

Cherie:  Absolutely. You can’t ever go into your renovation disorganized. You have to map everything out before you start. You have to coordinate your trades, you have to book them in, they have to have a scope of works.

When you’re not organized, that’s typically when it costs you more money in labor costs, rework, materials being installed and then having to be ripped out, so good planning is the foundation of any successful renovation.

Kevin:  What are your plans for 2017 in terms of education and seminars and so on, Cherie? What have you got on the agenda?

Cherie:  We’re rolling out a whole series of new online courses. We have Cosmetic Renovations for Profit coming in the new year. We’ve just launched Interior Design for Profit. That’s for anybody who wants to know the basic principles of interior design and property styling so that they can potentially train themselves on how to do that themselves.

And we have a whole series of other property-related courses – granny flats, small developments. Yes, there are five or six courses rolling out, which we’re pretty excited about.

Kevin:  And all available through your website?

Cherie:  Yes, RenovatingForProfit.com.au

Kevin:  Always good talking to you, Cherie Barber. Thank you so much for your time, and all the best for 2017. I look forward to talking to you as the year goes on, too.

Cherie:  Thanks, Kevin. I appreciate it.

 

Start thinking long term – Rich Harvey

Kevin:  Not getting sidelined by short-term thinking is going to be one of the big obstacles that property investors will have to look at next year. That’s according to Rich Harvey, who is the president of REBAA – the Real Estate Buyer’s Agents Association of Australia – and his website is PropertyBuyer.com.au.

Rich, welcome to the show. Why do you think that’s going to be a challenge for property buyers?

Rich:  Thanks, Kevin. Great to be on the show again.

I think this year has been quite a challenging year, and next year will be probably an even greater challenge. We’ve had really significant price rises in the Sydney and Melbourne market. The rest of the country is coming along in different phases. The challenge for investors is knowing where they’re going to get the best return for their dollar, not just next year but for the next 10 years.

That’s why I talk about short-term thinking. Some people get very hung up about a statistic that might come out from a property provider and latch onto that one statistic and then make a decision only based on very short-term thinking.

Kevin:  There is a lot of information available now for buyers and sellers, I guess. Has that made it a bit more difficult trying to work through what you should be paying attention to, Rich?

Rich:  Absolutely. There’s just so much noise out there in the media from different providers. CoreLogic will put out a report saying there’s been a substantial drop in prices in Melbourne, and so everyone runs from the Melbourne market, or Sydney’s due to have a crash. They’re just sensational headlines.

You have to look at the underlying factors that drive the two big behemoth markets, and if you can’t afford those markets, there are plenty of other markets that investors and home buyers can get into around the country.

Kevin:  One of the big mistakes we’ve seen during 2016 is that people tend to think that it’s one property market as opposed to a whole lot of different ones.

Rich:  Exactly.

Kevin:  Have you got a preference? Would you be investing in a house or a unit?

Rich:  Great question. The answer to that question is it depends. I think generally going forward, houses will probably track at a faster appreciation rate than apartments. However, if you’re buying an apartment in an area where 95% of the stock is apartments – like for example, if you’re in Sydney and you’re buying in Elizabeth Bay or Potts Point or Kirribilli, you’re not going to be able to afford a $6 million or $7 million house in that area, so apartments will probably do equally as well in those really tightly held inner city areas.

Don’t fall for the fallacy that land always appreciates, because you can easily go and buy a house out in the sticks – suburbs out at Longreach or Mount Isa – and do pretty poorly over time, as well. It all depends on the underlying drivers of supply and demand in the market that you’re looking at.

Kevin:  Do you think that we could be at risk? You talked there about units or apartments. Particularly inner city, we’ve heard a lot of stories about oversupply. Do you subscribe to that?

Rich:  No. Great question. I actually addressed that in my last newsletter, as well. A lot of people are asking me questions, “Rich, is the market oversupplied?” I think there’ll be little pockets of oversupply, and that doesn’t diminish the whole market.

An example, again back in the Sydney market, if you’re looking at places like Parramatta, or Homebush, Blacktown, Liverpool, Auburn, Zetland, Mascot, those areas will potentially have a small oversupply. In fact, SQM is suggesting that we might have an oversupply of only 4000 dwellings next year and about 9000 dwellings in 2018.

But you have to consider that Sydney’s population is 4.9 million. So that oversupply is a very temporary blip in a long-term trend of undersupply. We’ve had almost a decade of undersupply and a lot of the growth has been catch-up. Going forward we’re going to hopefully get a more balanced market, and I think then regulations are tightening up now and I think you’ll get to a position where we’re going to be undersupplied yet again in, say, 2019 or 2020.

Kevin:  How do you feel about the regional markets around Australia? Once again, I’m not asking you to put them all into the one box but compare regional to cap city markets.

Rich:  I think there are some good opportunities in some of the regional markets. Again, you have to exercise a lot of caution in those regional areas. Just because they’re attractive to visit doesn’t always mean they’re going to go up. But I think as long as they have a stable economy and really good growth drivers going forward.

There’s small regional and large regional. What I mean by the small regional, it might be like a Mudgee or an Orange, or if you’re in Queensland, it might be some of the smaller areas. The larger regionals are places like Sunshine Coast or Newcastle or Wollongong. They’re much safer bets in my view because they have a bigger population base and a more diversified job market, and that’s going to help drive the property market in those areas.

Just be really careful of mining towns. That would be my one tip. Again, sure, commodity prices are potentially recovering in some sectors, but it’s just such a volatile market.

Kevin:  Speaking of mining towns and mining markets, what’s your feeling about the West Australian market for 2017?

Rich:  I still think it’s going to be pretty lackluster. I think the time to buy in the Perth market is not now. I think it’s probably going to be another 12 to 24 months before you could start to look at that one. And the same for Darwin. They’re the two markets that I would say are still suffering.

If you want to be super countercyclical and go in two years early, then go for it, but for my money, I wouldn’t be putting it there at the moment. Just too much tied to the resources sector to really go forward.

Kevin:  Of course, in some of those markets – and you made that point just now about being countercyclical – there are some great buying opportunities, provided you’re going to get in there for the long haul, Rich.

Rich:  You have to make sure if you are countercyclical, you have to know it’s not going to have a dead-cat bounce and just stay down. For my money, I like to be more conservative and know that I’m going to be investing in a town that’s going to have a very, very long future. So Sydney, Melbourne, and Brisbane are the three key markets that really attract most of my personal investment strategy because I know that all of those markets have a very, very long-term future. Yes, there might be some small corrections along the way but they certainly rebound with a bang and like I was saying, particularly in Sydney, and gone off.

I don’t see it slowing down much next year. In fact, everyone’s saying Sydney is going to grind to a halt. Well, I think we’re going to have pretty reasonable growth next year because we have a constriction in supply.

Kevin:  That probably answers my next question. My final question to you is if you were looking for a property for yourself right now, where would you be looking and what price range would you look in?

Rich:  Again, it depends on your individual strategy. For me, I look for value-adding strategy. I’m still looking in western parts of Sydney. Anything to do with the Badgerys Creek area, that’s really going off really well. I love to buy in blue-chip suburbs where I can do a small reno. I love to try and do things where I can do a duplex. I also like the positive cash flow.

I really like the Brisbane market, particularly around the Logan Shire. We’re doing quite a bit up there in adding granny flats where we can buy houses and get around 6% yield but adding the flat, we get 8%.

Newcastle, I’m also pretty keen on because I think that market has some strong legs and getting really good rental returns, as well.

Kevin:  Good talking to you, Rich Harvey. Thanks for your time.

Rich:  My pleasure. Thank you, Kevin.

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Kevin Turner
kevin@realestatetalk.com.au
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