11 Jul Where to look outside Sydney and Melbourne – Michael Beresford
You would be forgiven for thinking that the Australian property market revolves around Sydney and Melbourne and while we have seen tremendous gains in those markets there are others you should consider, returning excellent results that have been overshadowed by the results coming out of the southern capitals. Michael Beresford is doing that and he tells us where he is investing right now.
Kevin: Melbourne and Sydney are, of course, two major markets that we’ve seen tremendous growth in in recent times, but as you’re going to hear in this interview, there are a lot more markets in Australia than just Sydney and Melbourne. One of those markets is Brisbane. It’s showing remarkable resilience and great growth right now. Joining me to talk about this, Michael Beresford. Michael is the director of investment services at OpenCorp.
Michael, thanks again for your time.
Michael: You’re welcome, Kevin. Good to be talking with you.
Kevin: Thank you. Tell me about Brisbane, your view on where that’s headed.
Michael: We see nothing but positive things regarding Brisbane. And when you boil it down to the basics, this property investment caper is not all that complex. There are a few key indicators that we need to look at.
Starting right from the top, it’s really supply and demand that drives these markets. Obviously, Sydney and Melbourne have seen the major benefit of the population growth and that growth cycle that happens, but when we look historically and when we look at the fundamentals, Brisbane is the next capital city that follows Melbourne and Sydney.
The gap between Sydney’s median house price and Brisbane’s median house price has never been as big as what it is today in percentage terms. Net interstate migration has rapidly increased in the last 12 to 18 months into Brisbane, and when you consider the fact that the median household income in Brisbane and Melbourne is virtually identical, yet the median house price is close to $400,000 different, logic says that Brisbane has some catching up to do. And historically, when it does start to catch up, that catch up happens pretty quickly.
Kevin: What about stock? Is there sufficient stock to fuel that demand?
Michael: Yes. Over the course of the last three to four years, Brisbane went through large numbers of building approvals – more so in the apartment space, and that was limited to certain sections of Brisbane and reasonably close to the CBD and the principal activity centers around.
But in the kind of areas that we’re focusing in – middle ring growth areas – there are pockets of available select properties in the locations that we want to be in, but nowhere near the supply in terms of volume that we saw in Melbourne going back two and a half, three years ago when our clients were buying in here, and the vast majority of them have made 40% to 50% or more in that time.
Yes, relatively speaking, the supply is still pretty constrained, especially in the housing part of the market as opposed to apartments, which is obviously where we focus on.
Kevin: What sort of growth potential do you see for Brisbane? Is it going to be anything like what’s happened in Sydney or Melbourne in recent times?
Michael: If we all had the crystal ball, we’d be a lot wealthier than we are. Look, I’m very confident that over the next three to five years, Brisbane will be the next best-performing capital city for us to focus on. History tells us that, those key dynamics that I mentioned tell us that, and logic tells us that as well.
If someone in Sydney can sell a median house for $1.2 million and buy something even nicer than what they’ve got in Sydney in Brisbane for $650,000 and pocket close to $500,000 in cash, then a number of people… And we’re seeing it already. Once we talk to clients about this, they’re like “Oh, I know people who are doing that.”
We’re starting to see that progression happen already, but they’ll only move on one proviso, and that’s that there’s a job for them to go to in Brisbane. And Brisbane has been very strong in the last 12 months in job creation. When you adjust the numbers for the size of the population in a capital city, it’s by far and away number one, even exceeding Melbourne and Sydney.
I think there’s a bit of a changing of the guard. Obviously, the population growth has underpinned a really strong Sydney and Melbourne market performance over the last three to five years, hence why we see Brisbane doing the same moving forward.
Kevin: Are there any pockets of Brisbane that you’re favoring? North side, outside, south side?
Michael: The main areas that we are focusing on are within that Brisbane city council area as an immediate focus. Way too much data and complexity to get into in a short discussion, but it’s safe to say that’s really where the focus of the government spend and development is as a first step.
It will obviously then spread throughout, and it’s not to say that other pockets… Especially within the Redland area, the Morton Bay regional council as well are areas that we favor, but it all really comes down to where the governments are spending the money, and those are those major hubs that they’re investing in.
Kevin: What about yourself? What are you doing in your own personal investment portfolio?
Michael: I do exactly the same, Kevin – as do the other guys and our employees as well – as what we talk to our clients about. Two of my last three acquisitions have been in Brisbane. The one before that was in Melbourne, and that’s gone up about $160,000 in 18 months. Yes, it’s exactly the recipe I’ve been talking about that I apply to my own personal portfolio as well.
Kevin: Let’s take a wider view. What about Australia-wide, where do you se the property market headed?
Michael: I think obviously, Perth has been in a period of flatness – for lack of a better term – since 2011, really. So, that will be bound to come back. And while Perth is not all about mining, it is obviously a major factor within that capital city. That will come back in time, and we think obviously, Perth generally follows Brisbane, so that’s one to keep an eye on.
I definitely think that Sydney is, if not at the top, very close to the top. A lot of this doom and gloom – which really irritates me – is around how the Sydney market is in decline and the boom is ending and all that kind of thing. Let’s keep these things in perspective. The Sydney market was up 75% since 2013, so if you had said to me back in 2013 that you could make 70% growth, I wouldn’t be too fussed about it coming back by 5%. That’s what happens with property markets: there are minor corrections and then it stabilizes.
I guess the usual story: as long as you’re taking a long-term approach to your investments and you’re not buying speculatively, trying to make some money quickly at the top end of the market, as I say to clients, even if it takes 12 months for the Brisbane market in hindsight to start moving, it’s far better to add another 12 months to that growth cycle and get in at the bottom than make a quick $50,000 or $60,000 at the top and then be sitting flat for the next seven to eight years.
Kevin: Even the growth cycle in Brisbane is still fairly consistent. We’re still getting annual growth of around 6%. That’s not too bad if you’re in a holding pattern and waiting for some sort of growth to come through.
Michael: You took the words out of my mouth. I was actually going to say one of the areas that we have been putting clients and ourselves into in Brisbane in the last 12 to 18 months has seen a 6% increase in the four-bedroom median house price in that suburb in the last 12 months. So yes, it’s pretty spot on.
Look, I guess there are always going to be headwinds and challenges, whether it be the lending environment, whether it be what Donald Trump is doing or what Asia is doing, or anything like that, but we’re really passionate about helping people try to eliminate that white noise and take that long-term view.
It’s not whether you can pick a winner today or next week or time the market perfectly for six months’ time. What we’ve learned over 25 years of doing this investment caper is you have to be in the market, buy well, don’t buy on emotion, follow a plan, make sure your holding cost is low, and the growth will happen over time, and time moves pretty fast. So, you’ll look back on it 15 years ago and think “Wow, I remember buying that property for a lot less than what it’s worth today.”
Kevin: Thank you. I look forward to catching up again soon.
Michael: Good on you. Bye for now.