09 Feb Why medians are not relevant + Selling in Spring might NOT be a good idea + A petition that every Victorian investor needs to know about
Highlights from this week:
- Never lose an important document or file again
- Picking a ‘family friendly’ suburb
- Victorian investors need to be aware of new regulations
- Why Spring might NOT be the best time to sell
- Don’t be misled by median prices
Family friendly suburbs revealed as investor hot spots – Tim Lawless
Kevin: It’s only natural that an investor will want to purchase a property that’s popular with the vast majority of renters, obviously, to get a higher return. For that reason, it’s important to note that in a recent CoreLogic report, it was revealed that 71% of households in Australia are characterized as families or households where the occupants are related. It’s interesting to note that 60% of those households have children residing in the dwelling.
So, it does follow that these family-type properties will attract more consistent and possibly even higher rents. To talk about the report from CoreLogic, joining me, is Tim Lawless.
Good day, Tim. Thanks for your time.
Tim: No problem, Kevin. Thanks for having me on the show.
Kevin: Tim, whereabouts are these properties found in different parts of Australia?
Tim: They’re all over the place, actually. There are some fairly evident concentrations in the areas that have a really high proportion of families, but you’ll find across each of the capital cities and the major regional centers, there are enclaves where families do seem to be most concentrated.
You’ll find, for example, that they generally do tend to be a little bit further from the city where properties are a little bit more affordable but also where transport options are quite prolific and all the necessary amenities are located around those areas as well.
Kevin: Tim, on a national scale, did one capital city stand out from the rest in terms of its popularity for establishing a family property?
Tim: It did. It was Sydney, and Sydney really stood out quite clearly. It was the southwest region of Sydney that had 10 of the top 20 suburbs that are most popular with families with kids. If you look at that top 20 table, which is available on the Aussie website, it starts out at West Hoxton and then Horningsea Park, both in the southwest of Sydney, where nearly 80% of all households in those areas are characterized as family households with kids.
Kevin: Is there anything that stands out why these areas are so popular for families?
Tim: There are a couple of reasons. They’re clearly quite affordable by Sydney standards. The typical price of a dwelling in both of those suburbs is around about $840,000 to $890,000. You might hear that and think “Wow, that’s not all that affordable, actually,” but in Sydney terms, where the typical price of a house is generally up around the $1 million mark, these are relatively affordable suburbs.
But they’re also on pretty decent transport thoroughfares, they have a lot of amenity around them, they’re quite established areas at many of these locations, and you do find that they also seem to have a commonality amongst themselves, which is there is not a great deal of densification in a lot of these very popular areas. So, while land sizes may be getting a little bit smaller, we’re not really seeing an introduction of medium- to high-density dwelling options.
Kevin: You mentioned their affordability, and it’s debatable whether that figure in Sydney is affordable, but we’ll go with that theory. Is affordability the key? In each of these areas, does it have to be affordable?
Tim: Not really. There are a lot of elements that, I think, families are looking for outside of the price tag. If it was purely based on affordability, you’d be finding there are a lot of other suburbs that are more affordable, for example, West Hoxton.
It comes back to a blend, I think, of suburbs being very affordable, or comparatively affordable, but also having access to infrastructure, having access to amenity like schools, healthcare, shopping facilities, and of course, having a decent commuting time into the main areas of work, as well. I think it’s really that blend of the price tag along with what’s actually available in the suburb in terms of amenity and infrastructure.
Kevin: Were there any key statistics that you used to define these areas, Tim?
Tim: It’s a blend of census data and housing data. We looked at the census data, which is still reasonably fresh, and down at the suburb level, we looked at those suburbs that showed a high proportion of families with children. So, it’s couples with kids as well as single-parent families. Then based on those lists of where families were most concentrated, we then matched up with all the relevant property data.
So, what’s the typical buy-in price for a house and apartment? But also, what’s the lower quartile value? So you can really see what’s the entry point rather than the middle price or also the upper price?
We looked at the average land size in the area, and one of the interesting things is quite often, these areas that are popular with families tended to show larger blocks of land as well. Then we also looked at how many sales there were and all those sort of things that people will be looking for.
Kevin: Tim, do you think the definition of the family home has changed over the decades?
Tim: It has to some extent. You can see the trend towards smaller households has certainly been evident. It seems to be bottoming out now at around about 2.5 persons per household. But we are seeing families now, generally, with fewer children. But also, there’s been this trend towards families, in some cases, sacrificing the backyard and moving into areas of high density, so maybe sacrificing a Hills Hoist for a courtyard and living closer to the CBD where they may find commuting times are a little bit better.
I think this study really does highlight that we’re still seeing this great Australian dream where families are aspiring to detached housing with a decent backyard is still very much alive and well. But I think when you consider the price tag for detached housing and the fact that lots are generally getting smaller, particularly for new green-field developments around the outer fringes, I think we are seeing a change in the way families are choosing to live.
Kevin: Great talking to you, Tim Lawless from CoreLogic. Thanks very much for your time, Tim.
Tim: Thanks, Kevin.
Don’t get hung up on median prices – Rich Harvey
Kevin: I was delighted the other day to read that Australia’s largest body of professional buyer’s agents is warning homebuyers not to make their purchasing decisions based on median house price values alone.
The Real Estate Buyers Association of Australia, REBAA, and their president, Rich Harvey, said that many buyers wrongly used median house prices as the benchmark for measuring growth. Well, I have to say I can’t blame them, because it’s all over the media. To join me to talk about this, Rich Harvey.
Good day, Rich. I get very frustrated about this. And I know I’m in the media, but the media seems to be so focused on saying what’s happening with the median almost as if it’s an indicator about what’s happening with the market.
Rich: That’s right, Kevin. It’s a pleasure to be on your show again, as always. I like catching up with you. That’s always good, and I love the way you give insightful information to your listeners and readers, so always good.
Kevin: Thank you.
Rich: I’m a bit like you; it’s one of my pet topics as well. I get sick of the way misinformation is presented. It’s funny that media and median only has an N difference in the two words. But I always advise people, don’t put too much faith in median prices, particularly short-term median price movements. That’s what the media focus on.
They’re saying “In New Farm, the prices have dropped 5%,” and that’s off the basis of about four or five sales. If you’re looking at median house prices, you have to look over a one- to two-year time horizon as a minimum. Monthly medians have become meaningless in my opinion.
Kevin: But median house prices have nothing to do with value; it’s really an indicator about where people are buying, rich.
Rich: That’s right, exactly. I’ll give you an example. If you take Vaucluse in Sydney, where your median house price is somewhere between $3.5 to $4 million, in one year, you might get ten sales of $10 million – in that range – and suddenly, the median jumps up 50% to an $8 million median. But the following year we have a currency crisis and there are very few sales, there are a couple of sales around the $2.5 to $3 million mark, and the median might be $3 million. Oh, it’s dropped 110%. They’re wild fluctuations.
What people need to look at are repeat and comparable sales. You have to look at prices based on comparable sales. That’s the key thing.
Kevin: Buyers move in and out of markets, and if you only have a few sales in a particular market, you can’t judge anything on the median. Aspirational buyers will buy up; that doesn’t necessarily mean that the values are going up.
Rich: That’s right, correct. Even within a suburb, there will be types of properties that will be in higher demand and other properties that will be in lower demand.
One of the tricks is to look at the volume of sales in a suburb. If there is a high volume of sales of a particular type of property, that’s a pretty good indicator. If you can trend three-bedroom or four-bedroom houses as going up at a certain rate, you can actually get a pretty good gauge as to where the prices are going to go in the future.
But if you have a huge eclectic mix of apartments, townhouses, houses, and villas, all different species of properties, it’s a lot harder to track what capital growth might be.
Kevin: Yes, indicators like stock on market. If you only have two buyers in a market and you have a hundred properties, well, I can tell you now that prices are not going to go up. It really depends on the balance between the amount of stock and the number of buyers in the market.
Rich: Exactly right, that’s a much better indicator. Another good indicator is days on market. How long is it taking for a property to sell? At the height of the boom in Sydney and Melbourne, it literally got down to about 25 days on market. We’ve turned the corner now, and it’s in the high 30s, and it will probably get back to around the 50s or 60s – so one to two months, probably two months on average.
We’re not in a buyer’s market yet, but we’re coming out of a seller’s market in the two major capitals. It doesn’t mean that those markets are dead, but you have to be very careful how you read the tea leaves of the property market.
Kevin: The bottom line here, Rich, really is read indicators like days on market, how long is it taking to sell a property, how many properties are on the market, how many buyers are in the market.
I’ve always found a good benchmark that if you have about six months’ worth of stock – in other words, if it’s going to take six months to sell all the stock in a particular area right now – then you’re going to have a fairly stable market. If it’s more than that, prices are probably going to be under pressure. If it’s less than that, prices are probably going to increase.
Rich: It comes down to simple supply and demand, Kevin.
Kevin: It does.
Rich: You have to also look, as you said, at the volume of stock coming on the market. If you have some big land subdivisons and there’s going to be a flood of new lots coming on the market or some big apartment releases, there are going to be hundreds of new apartments flooding your market in a particular suburb, then that’s going to have a direct impact on prices in that market and it’s going to soften. There’s no doubt that will happen.
My advice to buyers: buy in tightly held markets at fair market value, do incredible research, but don’t just be misled by median prices.
Kevin: Good comment from Rich Harvey. Rich is from the Real Estate Buyer’s Agents Association of Australia. He is their president.
Good on you, Rich. Nice talking to you, mate.
Rich: Thank you, Kevin. Always a pleasure.
Why Spring might NOT be the best time to sell – John Lindeman
Kevin: We hear all the time – don’t we – that spring is the best time to sell a piece of real estate. What about when is the best time to buy? Is it true? John Lindeman from Property Power Partners has done some research on this, and I guess he’s going to flip the table on us.
Good day, John. How are you doing?
John: Good morning, Kevin, and hello everybody.
Kevin: John, just before we get into that, I believe you’re going to be sharing some wisdom. You have some seminars coming up in Sydney, Brisbane and Melbourne. By the time we get to air with this one, Sydney will have happened, but when are you in Brisbane and Melbourne?
John: We’re in Brisbane for the first time on the 21st of February – it’s a midweek evening event, and in Melbourne the 27th of February. These are free events, and the ones we held last year in Sydney and Melbourne were fully booked out very quickly, so I urge people to attend.
Kevin: Okay, the 21st and the 27th of February. You can get all the details by going to the website that we’ll link here in this interview. It is called 7steps2success.com.au, but there is a link inside this article.
John, is spring the best time to sell?
John: That’s what a lot of people would have us believe. They assure potential vendors that more buyers venture out once the cold and wet weather is over and fewer people go house-hunting in summer because that’s when they take their annual holidays. They also say summer, then, is the best time to buy because there’s less competition, and it seems to make perfect sense.
But I had a look at this. I did quite a bit of research and wrote an article for Your Investment Property on this in which I’d thought “Well, let’s have a look at what regular changes occur both in the number of sales and also the number of listings and whether these have an impact on prices.” I did this for houses and units, so it was quite an intensive study.
What I discovered was an amazing thing, and that is that there’s no real variation in sales over time. In fact, the number of sales in places like Sydney have been going up over time, but there’s no seasonal variation. And I thought “Why is that?”
The reason is the way in which we go about buying properties nowadays. It’s all done online. We do our initial research and we go to listing sites, and it’s all done via the Internet in the comfort of our own homes. We can do this at work or when we’re on holidays, and we can ask for information via e-mail or phone.
So, the Internet has really been a gamechanger, and it means that sales volumes don’t actually behave in the seasonal way that they may have done years ago when we used to go out and physically look at properties and get the newspaper and so on.
Kevin: What it really means, John, is that we might get more listings in spring, but that indicates that buyers have more choice in spring.
John: That’s exactly right, and that’s what happens, because people think “Oh, spring is the right time to sell a property,” so more vendors put their properties on the market in spring, and fewer of them do in summer because they think there are fewer buyers out there during the summer holidays or during the colder winter months and less competition.
But what the research has showed us is that that’s not so, and actually, it has the reverse effect of what they intended, as you just said. There are fewer properties for sale during summer, and that means it’s a better time to sell.
Kevin: You’re better off listing your property when you don’t have as much competition. Your property is going to stand out a lot more, too, John, isn’t it?
John: That’s right. And the difference can be quite substantial. When we looked at the price variation, it was from 5% to 10% in median price variation from one season to the next. So, that outweighs any trend changes that might be taking place.
The lesson from this is if you have a choice, it pays you to use seasonality to your advantage, and spring is really the best time to buy a house or a unit because the number of properties on the market is higher and median prices tend to be a bit lower. But summer is the best time to sell, because the number of properties for sale is lower, and therefore median prices are a bit higher.
Kevin: It’s a great study, and it has changed my thinking about the times to buy and sell, because it makes sense to be buying when you have less competition from other buyers, and it’s better to sell when you have less competition from other sellers. So yes, it makes a lot of sense.
John: That’s right. It does, and the numbers have proven that that’s the way our market behaves. So, now you know when the best time to buy and sell is.
Kevin: The two seminars you’re doing in Brisbane and Melbourne on the 21st and 27th of February, 7steps2success.com.au, what will you be covering in that seminar, John?
John: It’s a free event, and we look at all the different things that people need to know about the market – which areas are predicted to boom in your particular state, how to avoid the mistakes that people make such as seasonality, know where prices are likely to rise and where they’re likely to go backwards, understand how the market works, and pretty much be fully equipped, so you can’t really afford to miss the information that we put together in these events.
Kevin: That website again is 7steps2success.com.au. Those seminars, 21st of February in Brisbane and 27th of February in Melbourne with John Lindeman. John is from Property Power Partners.
Thanks for your time, mate. We’ll catch you again soon.
John: Thanks very much, Kevin, and I hope to see your listeners at one of the events soon.
Finding investment grade property – Ben Kingsley
Kevin: In October last year, the state government in Victoria set down a new Residential Tenancies Act that could have a fairly huge impact on a lot of investors, those investors out of Victoria. Joining me to talk about this, Ben Kingsley who is from the Property Investors Council of Australia, PICA.
Are you the chair of that, Ben? I know you’re heading it up; you started it all off.
Ben: Yes, I am, Kevin. That’s right.
Kevin: So, you’re the man to talk to. What concerns you about what the stage government in Victoria have done, Ben?
Ben: Kevin, the backstory is that the Tenancies Act in Victoria hasn’t been reviewed for an extended period of time, and definitely, things change. And we want to try and get the balance right between obviously the rights of the tenant but also the rights of the landlord who owns the asset.
As part of that consultative process that took place, there have been some reviews, and now we’re seeing these recommendations. There are 14 of them that have gone through, and some of them are quite good. Some of them are needed, and certainly, some of them focus on protecting some of the more vulnerable people in our society – and we understand that.
Now, obviously, from our point of view, we represent landlords and those people. We’re a newly formed association, so we haven’t had a chance to engage with government yet in terms of these proposals. So, we’re concerned about a couple of them.
Kevin: Where do you think they went wrong?
Ben: I think certainly the one around the idea of allowing tenants to make non-structural modifications to rental properties. Personally, hanging up a hangar to put a picture up, that does no real material damage to the property; I can understand all that. But what that means is you could also potentially see a tenant basically put concrete out in the back yard. That’s non-structural.
Imagine if the whole backyard of your property was concreted and you had no rights to stop the tenant from doing so. That’s an extreme case, but this is the sort of information. The devil is always in the details. So, it’s ones like that.
Another is the removal of the landlord’s right to consent or refuse pets. Ultimately, we have different views on whether we allow pets in our properties or not. Imagine if you did have a large dog with really large claws and you have soft pine floors. That would tear those floorboards apart. Where are the recall rights of the landlords to get those floorboards replaced?
So, it is all coming down to we want to see more detail. It’s all well and good to say “Here are our 14 new reforms,” but tell us a little bit more about how they’re going to be policed and what’s the recourse for the landlord? Because there’s no doubt that all of these changes are in favor of the tenants and giving them more rights and opportunity.
There’s a blacklisting of potential bad landlords and potential bad property managers, and we think, “Okay, there’s a blacklist of bad tenants, we understand that. But how do you get removed from that, and what were the circumstances?” If one bad staff member inside a property management business gets that property management business blacklisted, if they’re a national network, that particular network of real estate agents is now blacklisted.
Again, the devil is in the details, so we want more consultation on this rather than them going to that, and that’s why we’ve joined the petition that’s been set up by the real estate industry to get these things further consulted on.
Kevin: We’ll come to that in just a moment. Are you concerned at all about the changes to notice periods, as well, around ending a lease?
Ben: Yes, we are. Ultimately, what we’re seeing here is changes to the notice period around ending a lease, removing the ability of the landlord to serve a 120-day notice period to vacate for no specified reason. “No specified reason.” What does that mean? If the landlord now changes their mind and they want to move a family member into that property, is that a specified reason, or no, that’s not strong enough; they need to be selling the property or doing structural changes to the property where the tenants need to be moved out?
I can understand tenants want more confidence around long-term tenancy inside a property, but there are unique circumstances where a landlord who owns the asset potentially needs some flexibility around that. So, to say “No specified reason,” or “Okay, that’s not a good enough reason. No, the tenant can’t be moved on.” To sit there and say “I’m going to sell the property” when they don’t intentionally want to sell the property to move the tenant on. It’s not black and white. There’s a lot of gray in this, and that’s why we want to understand it a little bit better.
Kevin: What amazes me is that governments – not just the Victorian government – all seem to do it. They come out with these sweeping changes without any consultation with people who are actually working in the field all the time and can help them frame this better.
Ben: Totally. Let’s look at the federal government; let’s not just look at the Labor state government in Victoria. Changes to depreciation, changes to travel cost. No consultation; it’s just basically blanket statements to balance the books.
We think that in terms of what’s happening here in Victoria, there’s a lot of competition in the politics for the Greens versus the Labor vote, and obviously, this is social politics here, so we’re also seeing potential here around “Is this a vote-winning exercise?”
We do agree that there needs to be a review, and that has been going from 2015. But there’s not been a lot of representation on behalf of the landlords, and that’s where PICA comes in, and that’s why we’ve set this association up. There are over 2 million of us around Australia, so we want to be able to build that association so that we can add our input into these consultation pieces.
Because when we see reforms like this that haven’t really been thought through in terms of we want a little bit more detail, that gives us an opportunity to be at the table for negotiation and discussion and to give our input.
Kevin: Okay, so anyone interested or who feels they may be impacted or want to have a say in this, how do they get onto this petition, Ben?
Ben: The petition is all around the focus of RentFair is Unfair, so that’s our petition. We’ll be able to give you the details, we can put them on your site, Kevin, and then they can click on that link and add their name to that petition as well.
Kevin: All right. By the time we get to air with this, I’ll make sure that it’s an included link inside the commentary, so just look for that link. Just scroll down and see. We do word-to-text on all of our interviews, and I’ll make sure that that link is inside there to take you straight to it.
Thanks for your time, Ben. I look forward to talking to you again more about what the Property Investors Council of Australia is up to, as well.
Ben: Thank you, Kevin. Thanks for your time.
Never lose a plan again – Andrew Mackie-Smith
Kevin: In September 2017, a program called Inndox won a place in the CityConnect Smart Cities program, a six-month accelerator to support, design, and build a smart city solution, partnering with BlueChilli.
The co-founder of Inndox is Andrew Mackie-Smith. Andrew is an author. He’s highly regarded as a spokesperson on building issues. He’s a third-generation builder, a building certifier, principal and consultant managing director of the most awarded building consultancy for the past 15+ years; it’s a company called BuildingPro. And he joins me in the show.
Andrew, that’s a long-winded way of saying welcome to a very esteemed guest. How are you?
Andrew: Thank you, Kevin. I’m feeling good, and a wonderful introduction. Happy to be here.
Kevin: Good on you, mate. You and I have spoken on another show that I do about Inndox. I just want to ask you what it is and why you have started it. What’s it about?
Andrew: Inndox is an online platform. It’s a website, and it gives property owners an easy way to manage their records and builders and developers a better way to hand over those records of a new build to an owner.
Kevin: Let’s talk about an owner or an investor to start with. What sort of documents do you see them putting in this program?
Andrew: These are things like plans, warranties, manuals, specifications, certificates – all those documents associated with a house that are normally sitting in folders and filing cabinets or attached to e-mails.
We think it’s really inefficient to waste time looking for those, especially when you’re trying to sell a property or you’re managing a rental property. Sure, you have a property manager doing it, but when they send you e-mails with attachments of receipts and things, they’re all over the place. You have some paper records, you have some attached to e-mails. We think it’s time to put all those in one central place so that you can easily manage them and access then when you need to.
Kevin: Many of the listeners to this show, of course, are either developers or investors, and they’re regularly doing renovations and so on, putting new bits and pieces into a build. I guess that’s where it would be very beneficial to have all of these warranties in one place. A very good timestamp as to what you’re doing with your renovation, as well, Andrew.
Andrew: Definitely, Kevin. Imagine the current practice – which is hard to believe, actually – that builders still will print off… They’ll have electronic copies of things like plans and the specification, the schedule of finishes. Think about paint finishes and the color and type of brick used on a house, the tiles, and the carpet type. They provide all those schedules to the owner, which is very useful going forward when you need to replace and repair some of these things.
Now, currently, they print those off and give them in a box or a folder to the owner, who promptly files them away in a filing cabinet or cupboard, and they forget about them. And they certainly don’t transfer them to the new owner. Or if they do, it’s very rare that that would occur.
So, now if it’s put into the cloud, it gives a great way for that to be transferred. It’s just easier to manage and maintain your property if you can quickly attach a floorplan to an e-mail and shoot it off to your architect because you want to do an extension. The first thing they’re going to ask you is “Have you got those existing plans?” Or if you want to make a claim on your dishwasher breaking down, you can quickly look up the warranty details and make a claim.
The Internet now is allowing a lot of things, Kevin. Things like Internet of Things mean all these warranties and manuals can be automatically kept up to date. So, no more reaching for old, outdated warranty manuals and things; it’s all kept up-to-date on the Internet. It’s just a handier way to do things.
Kevin: Yes. For any property owner, the program is called Inndox, inndox.com. What’s the cost of getting onto the site and putting the records in there, Andrew?
Andrew: We’ve kept it at $49 to make it affordable. That will cover it for at least ten years for people. For a period of ten years, they can put up to 2GB of data on there, which is a lot of files. Yes, that’s the cost. It’s the same cost for a builder, $49.
We arrived at that figure because from our estimates, builders are spending well over $500 to put together a handover file. We thought if we made it ten times cheaper, that would be a good starting point.
Kevin: Okay. The website is Inndox.com. Andrew Mackie-Smith has been my guest.
Andrew, thanks for your time.
Andrew: Thanks, Kevin. A pleasure to talk to you as always, and all the best.