Bernard Salt predicts future direction of the property market
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Bernard Salt predicts future direction of the property market

By Demii Kalavritinos
Bernard Salt, KPMG, Special Adviser, Demographics

As an investor wired into the media you would have no doubt heard of Bernard Salt’s comments around the need for Gen Y-ers to stop eating smashed avocado should they ever want to be able to save for a property.

Although taken out of context, the comments caused a wave of responses both at home and abroad about the affordability of Australian property, how a generation of investors will never crack the market and that a property bubble exists in Australia – and that it’s about to burst.

In this special episode of the Smart Property Investment Show, we hear first-hand from Bernard Salt from The Demographics Group on the realities of investing in Australian property, where you should be channelling your dollars, whether there is a bubble (and if it's going to burst) and how our markets will develop in the future.

Bernard also shares his insights on the red flags all investors should be aware of when investing in property as well as the key economic and social change data you should be using to help establish trends and determine whether to invest in a suburb or area.

According to Bernard, job growth, wage growth and infrastructure growth are the essential factors to consider when looking at a new property. Accessibility, as well as transformation to make the way of life “easier”, are also significant factors to consider.

Tune in to get the inside scoop on:

  • Bernard’s tips on what’s hot and what’s not
  • How immigration has impacted the Australian property market and why it will continue to do so
  • His views on the markets subsiding, plummeting and going sideways 
  • How we can create pathways for that next generation to get access to that property market
  • How different markets will look in hishe next few years
  • Why the strategy of buying within ten kilometres of the CBD is successful
  • How jobs increasing in areas outside the CBD will impact the central point of Sydney

All this and a whole lot more on this issue of the Smart Property Investment Show.

 

Make sure you never miss an episode by subscribing to us now on iTunes! 

If you liked this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

Suburbs mentioned in this episode:
Wyalong
Campbelltown
Sydney
Melbourne
Brisbane
Bondi
Chatswood
Parramatta
Blacktown
Badger Creek
Ryde
Epping
Penrith
Liverpool
Homebush
Westmead
Woolloomooloo
Paddington
Hornsby
Adelaide
Mount Barker
South Yarra
Richmond
Burnley
Glen Waverly
Lilydale
Bowral
Macedon
Hahndorf
Perth
Mandurah
Busselton
Bunbury

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Sydney property has its 'best years ahead'
6 ways to increase your yield in a tough market

Speaker 1: Welcome to the Smart Property Investment Show with your host, Phil Tarrant.

Phil: G'day everyone. It's Phil Tarrant here, host of the Smart Property Investment Show. Thanks for joining us today. We're gonna get deep into some data today, try and draw some observations from parts of our economy which influence the way in which we invest in property. And someone's come into the studio who's gonna help me out with this. You've probably heard of his name beforehand, Bernard Salt. He is the managing director of the demographics group formerly, and from where I know him from is his time at KPNG. How are you going? Thanks for joining us.

Bernard: Hi, Phil. Yes, pleased to be here.

Phil: A lot of people know your name. You write a piece in the Oz every weekend, just around your view of the world and looking at our economy and drawing some interesting insights from the information that you're able to generate through your research, and applying that - and to be fair - in a really easy to read way, which makes sense of what is often a pretty complicated topic.

            Most recently everyone would know that the avocado comment you made, smashed avocado, where you've got the millennials in today's world who want to have their cake and eat it as well. And I think your point was, if you go out eating smashed avocado every single day or every single whatever, it's gonna be pretty hard to save a deposit and get into property investment. So, let's start with that.

Bernard: Let's start with that, yes. Go straight to the heart of it.

Phil: So, you're a bit of a, what do you call an icon, a meme in around this right now.

Bernard: Mm-hmm.

Phil: All around this smashed avocado. Let's just clarify what you said, that point.

Bernard: Sure, I wrote a column in October 2016, so twelve months ago, where I was parodying Baby Boomers for their conservatism. And I did that through the means of a Baby Boomer wandering into a hipster café, and I made the point that as a Baby Boomer in a hipster café, you can't read the menu because the writing is too small. You can't hear yourself speak because the music is too loud, you can't even sit on a milk crate because that means your bottom is lower than your knees, and you can't get back up again. And then you secretly whisper to each other, because you could never say this out loud, "Look all these young people eating smashed avocados, shouldn't they be saving for a house?"

            It was all done as a parody on middle age. What happened was that it was received as intended, as me poking fun at the Baby Boomers for being so conservative. Over the weekend, on Monday morning, a news organisation took just the two sentences, or three sentences about smashed avocado, and paraphrased it, saying, "Bernard Salt said young people shouldn't be eating smashed avocado, they should be saving for a house. What do you think about that?" And without the context of me parodying middle age, in fact, it looked like it was a critical comment of millennials, as stand-alone.

            That tweet went live at 6:27 am on Monday morning, by 10:00 am, I was fielding calls from the BBC in London. This issue went global, viral, and feral absolutely immediately. It made page three of the Stuttgart German newspaper, it made the newspapers in Caracas, Venezuela. It was raised in the Australian parliament by the following Thursday, a politician brought in an avocado. And it ignited the most extraordinary debate. And it's still going on. In fact, it's fact it's right throughout America, they will refer now to the 'avocado toast generation.' So, inadvertently, I have triggered this inter-generational debate around housing affordability.

            I will say that I think a positive outcome from it was that it has raised the issue of housing affordability. And the fact that it was raised in Parliament within a week. When the New South Wales premier, the new New South Wales premier came into office in early 2017, Gladys Berejiklian, she said her first point of order, first priority was in fact addressing housing affordability. So, in many respects I think that the positive outcome is that it has raised the issue of housing affordability in Australia. I think also at that particular time, October 2016, I think that that's when the housing affordability numbers were quite extreme, severe, in Sydney at the time. It was like, inadvertently dropping a match onto a fuse, and it just exploded.

            But look, I think since then the whole issue of smashed avocado has become great fun, Australians have taken it to heart. I suspect that smashed avocado is going to replace the pie and sauce, and the roast lamb-

Phil: it’s our ational dish.

Bernard: As our national dish on Australia Day.

Phil: Do you like smashed avocado?

Bernard: I love smashed avocado!

Phil: It's pretty tasty.

Bernard: In fact, that was the whole point of the parody. That I'd been to, had smashed avocado and thought, this is the whole point. You don't feel comfortable in those places as a Baby Boomer, and that was the whole point of the parody.

Phil: So the genesis of the parody was your experience sitting there in a hipster café?

Bernard: Exactly. Yes, that's right.

Phil:    Okay. So, there's a lot of ways we can take this podcast, and I know we're going to have a bit of fun here.

Bernard:        Yeah.

Phil:    And our audience is property investors, so, these are people who are looking to create wealth through property, and they understand that property as an asset class traditionally has been a reasonable bet for Aussies looking to create some wealth and plan for a nice retirement. Versus equities, or some other asset classes. We're very pro-property, very realistic about property. Not everyone should be a property investor, are we going to be a nation of renters at some point in time [inaudible 00:05:29]? Potentially. Is it only the rich who is going to be able to afford property in Australia? Maybe, at least in our capital cities.

            I want to start off our chat really, with this remark, and get your view on it. Is property overpriced in Australia? Is it affordable? Two different things.

Bernard: Well, I suppose ... I certainly do think that Sydney is an extreme market. It's unlike any other market on the Australian continent. And to be fair, I think it always has been. You can still buy a house and land in Melbourne, 14 kilometres from the CBD, in a place like Sunshine, Sunshine West. With the six in front of it, around about six hundred and something thousand. You can get a separate house and a separate block of land. You can't do that in Sydney, anywhere up to, I would think, 100 kilometres from the CBD. Not in Penrith, not in Wyalong, and not in Campbelltown, in fact.

            And I think the reason is that Sydney is genuinely Australia's portal to the global economy. Sydney airport has greatest connectivity, the Reserve Bank is headquartered here, the major banks, certainly the two biggest banks, or the leading banks, are headquartered here. Corporate Australia is headquartered here, overseas businesses tend to headquarter in Sydney. What this does is create a workforce, a skilled workforce, with the capability of actually competing up property prices.

            And in fact, if you look at the whole smashed avocado issue, it was absolutely the most intense in Sydney and Melbourne, of course. But also in London, it was debated, the issue was debated in the Chrystal Palace, in fact, within a week of my column coming out. You know, "This person in Australia has said such and such." And also in New York. New Yorkers will talk about the avocado toast generation, and this is because it is a cultural truth. That these global cities attracting strong growth, and particularly in knowledge workers, skilled workers, workforces, have the capacity to actually compete up the value of property. This is a real issue in global cities in Australia and beyond.

Phil: So if you want to live in Sydney and Melbourne, in particular Sydney, and you want participate in the economy, the high paying jobs. Whether it's Sydney, or whether it's London, or whether it's Tokyo, or whether it's New York. You've got to be expecting to pay more for property, this is the reality of the world.

Bernard: This is the cold, hard reality of a market economy.

Phil: Which is okay.

Bernard: I mean, whether it's right or wrong, or good or bad, is not the debate at the moment. It's when you have the best jobs, the highest paying jobs on the Australia continent concentrated into the inner CBD of Sydney and in the suburbs, then the residential property around that is going to be valued accordingly. And I suppose the question is, how do we actually deliver up more property, how do we actually create ways of, or pathways, for that next generation to get access to that property market. This of course is the eternal debate. This is the issue that everyone is trying to search for, we're trying to find out what that solution might be.

Phil: Is this a new debate? Or it's always, it's been through the generations, it's just there's a few more zeros in the…

Bernard: Well certainly, I think there is a lot more zeros now than was ever the case. And I certainly think that the rate of growth in Sydney property price over the last, since 2011-2012, has been quite extraordinary. I think there has been overseas influences in that as well. Those figures can't keep going up at that exponential rate forever, it must plateau, or even subside. And I think what has actually happened in the last 12 months, is that the Sydney market in some areas has subsided gently. And my view is that this is what happened certainly in Melbourne, in the 1990s. After the 1992 recession, property prices subsided, maybe 5% on average, something like that. And then they just went sideways, almost for five, six years or so. And then, you know, it took off again.

            That would be my expectation of how things would pan out in Sydney. I don't see a major collapse in, you know there might be the property here or property there for various reasons, but I think wholesale, not across the entire city. The reason is this, is that it fundamentally comes down to our rates of growth. Sydney's adding about 85,000 people per year. As long as Australia retains that big picture policy of high level immigration, those immigrants will come in through Melbourne and Sydney, and demand property, one way or another. That will underpin the market.

            I would be thinking differently if there was signals coming out of Canberra saying, look we need to significantly reduce immigration. And at the moment, we're importing maybe 190,000 people per year. If that was to go back to, say, 90,000 per year. As was the case in the late 1990s, so we have been there before. Then I would say, well you know actually, the strength of demand for the product is significantly weakening. But I can't see that.

Phil: So let's tick off the government policy side, before we move into some sort of smaller market dynamics. Irrespective of who's sitting in power in Canberra, do you think the next 20, 30, 50 years is going to be this mindset of: let's grow as a nation, let's bring skilled workers in, let's keep projecting on a national stage by being really strong locally. Are we going to see that?

Bernard: After the Second World War, we as a people and a nation, decided to embrace large scale, inter-continental immigration. Started in 1947. There have been times, over the last 70 years, where those numbers have really dropped, plummeted in fact. Mid-1970s, when Whitlam was in power, unemployment was rising and inflation was terrible. It got around maybe 50, 60, 70, 000, something-

Phil: We had a white Australia policy back then, didn't we?

Bernard: No, that changed in 1972, in fact. But it's more economic circumstances. But if you look at the bigger picture, over 70 years, we have embraced immigration on a large scale over 70 years. And especially over the last ten years, at a higher level still. If you look at somewhere like Sydney, 39% of Sydney siders was born overseas, outside of the Australian continent. If you go to New York, that proportion is 29%.

Phil: Okay.

Bernard: If you go to Paris, it's 22%, if you go to Berlin, it is 13%, if you go to Tokyo, it is 2%, if you go to Shanghai, it is 1%.

Phil: So we're well represented on that basis.

Bernard: The only city on the planet, that I can see, that is anything like Sydney in the proportion of migrants from overseas, is Auckland, at 39%.

Phil: Okay.

Bernard: But Auckland's about a quarter of the size of Sydney. Sydney is an immigrant culture that in unmatched on the planet. The only places that you could point to would be places like Dubai, which has guest workers, they're not migrants as such. So, that means that we've had this culture of accommodating vast numbers of people, and that has ... It means that if you, if that's been the policy for 70 years, if at the 30-year mark, you bought a house and land anywhere within ten K of the CBD, anywhere. And Sydney has doubled in population over that time frame, well then, there's simply more people competing for that.

            And the same logic applies into the future. Sydney now has five million people, by 2050 it will have eight million people, or thereabouts, in the 2050s. It's not a doubling of population in thirty years, but it is a significant increase. And that means that there will be even more people competing for residential property in Sydney over that time frame. That does mean there won't be periods and places where the market is soft, or even falls, in some areas. But at a bigger picture level, you'd say, "Well, you know, Sydney, Australia, Melbourne, Australia, Brisbane, Australia are probably good places to look at, in a property sense." Over the course of the next generation, as long as those Australians retain adherence to the commitment to immigration.

Phil: So on that basis then, and I can probably hear our listeners burning to ask this question, so Sydney and Melbourne are gateways for our expanding population. Yes, we get that. As a property investor, where do you buy property? So just being part of Sydney, does it mean you're going to be benefiting from this? Or do you need to go where the migrants are going?

Bernard: Well, no I don't think it's a question of migrants. It's not a question of buying property that migrants want, and there the value increases. It's migrants are actually like, you know, they're sort of, it's fuel into the greater furnace. Probably not a good ... It drives the Sydney economy.

            I think the next mental leap is to think, what does Sydney look like at five million? What will it look like at eight million? So, at five million, you've got Sydney CBD and the inner suburbs, that sort of hipster zone. Probably good idea to have bought in Bondi, don't you reckon, maybe thirty years ago. Buy anything in Bondi!

Phil: Buy anything Bondi.

Bernard: Bondi, thirty years ago. But also there's been growth around Chatswood at a business hub. Around Ryde and Epping as a business hub, around Parramatta as a business hub. By 2050 there will be hubs, I think, particularly around Parramatta, and particular around, say, Blacktown, with Badgerys Creek, in fact.

Phil: Sort of genuine satellite cities.

Bernard: Genuine satellite cities. Sydney at eight million people cannot continue to have people living on the edge, getting on the train in the morning, and commuting into the city centre. What will happen is that the city centre jobs will start to be replicated in stronger, suburban, regional centres. In the same way that, I don't like to draw the comparison with Los Angeles, but I will. Los Angeles doesn't really have a single CBD, the way in which Sydney does. There's something in the CBD, but there's also at Anaheim, also in Orange County, also at Irvine, also in the San Fernando Valley.

Phil: San Fernando Valley, yeah.

Bernard: So, you when you get to cities that are big and expansive, they're just too big to navigate. So, people create little mini-me CBDs within a part of a metropolitan area. So you live in Penrith, you might work in Blacktown. You might live in Campbelltown, but you work in, I don't know, Liverpool, something like that.

Phil: Mm-hmm.

Bernard: Now, it's hard for us to get our head around that, because we live in five million planet Sydney. But when you're living in eight million planet Sydney, the logic of that certainly stacks up. Plus the fact that I think that the next generation just will not sit for an hour and a half on a train in the morning to go into work, to work, to the come back an hour and a half to home. I mean, I think Baby Boomers might have done it, but I don't think the next generation. They'll say, "We've got better things to do." There's a better way, a smarter way, to actually deliver value to a business and for me to organise my life.

Phil: And when are you going to find places like Blacktown, or Penrith, or Liverpool, or Campbelltown exceeding the size of our traditional state capitals, like your Adelaide’s, or your Darwin’s.

Bernard: That's very interesting. Yeah, I think that certainly Parramatta is now equal in office space. As I understand it, to Adelaide. Adelaide is a city of 1.4, 1.5 million people. Well, I think there's probably 2.5 mil, west of Homebush through to Penrith, in fact. So I would certainly say that stronger office workplace location then increase the number of people with a high income that live around there, that will not want to live in the Eastern suburbs and travel out. Will want the equivalent created in those areas. The really interesting transformation might be where you get a cultural shift as well. So, not just better paying jobs out at Parramatta, and maybe out at Badgerys, or Blacktown, but you'll actually get this, sort of, cultural cache group coming, you know, hipsters. Moving from Bondi to Westmead or somewhere like that.

Phil: Westmead hipsters.

Bernard: Yeah, the Westmead hipsters.

Phil: The cafes are already there, so.

Bernard: Yeah, or the St. Mary's hipsters, in fact. Now, it's hard for us to get our head around it, but if you think of the way in which gentrification has transformed our cities. If you had have said, my parents generation have said, we're actually going to buy a terrace house in Paddington or Woolloomooloo and do it up. Why would you do that? Woolloomooloo? Paddington? Why not go out to a separate house on a separate block of land out at Hornsby and drive? That was the prevailing zeitgeist at that time. So, the whole ... It's an understanding that the city and it's culture and the way we operate will change over time.

Phil: The logic or the mantra, or the strategy, depending how you look at it, of buying within, in terms of how to be a good property investor, buy within ten kilometres of the CBD. So, as long as you're buying within ten kilometres of Parramatta, ten kilometres of Penrith, ten kilometres of Campbelltown, ten of kilometres of Liverpool. Does that logic still hold?

Bernard: Yeah, I think it does. But I would say ten kilometres of the CBD of Sydney because this is the most powerful job piston on the Australian continent. And maybe ten kilometres of Melbourne CBD, the second most powerful job piston on the Australian continent. Now, if you look at number three, four, five, six, it might only be five kilometres.

Phil: Yeah.

Bernard: In fact, around that. And this is where new data like the 2016 census results, when they come out. The sort of things I would be looking at is, how many jobs are within the Sydney CBD? It might be like 270,000, I expect something like that. How many were there five years ago? 265,000. So it's increased by five thousand, that's okay. It hasn't dropped, still growing, probably good jobs. But if you go to somewhere like the Northwest part of Sydney, it might have been 30,000 jobs five years ago, and there's 50,000 jobs now. That has value to an investor. Now, they're not hipster type apartments out there, but it shows that there's another 20,000 people coming to work in that location, who have a professional income, who can take out a mortgage, and have confidence that they will have that job for years down the track. And therefore, they'll bid up property values in the local area.

            So, I would be looking at the job generating pistons, and how fast they're growing. I'd have them ranked, 1-20, across Australia. No need to actually do it, 'cause I'll do it in my column. Just follow my columns.

Phil: Which I do by the way! So job growth, obviously, is a driver for, which should have positive pressure to push prices, which is what investors want, right. So, jobs growth, big tip. What else should you be looking for to be a fair indication that probably prices should go up? Outside of job growth.

Bernard: Well, new infrastructure is always good. New roads, new bridges. I remember when the Heysen Tunnel was opened in the Adelaide Hills. I know we've been talking about Sydney but there is an Australia outside Sydney.

Phil:    I get a bit of flak sometimes that we're a bit too pro-Sydney.

Bernard: Let's not mention the 'S word' anymore. Outside Adelaide, in the Adelaide Hills, there's a lot of cache to live up in the hills, and then commute down the Adelaide Hills into the CBD of Adelaide. In 2001-2002 the Heysen Tunnel was opened, and all of a sudden you can get from Mount Barker into Adelaide in like, 20 minutes, instead of 40 minutes tough driving. That had an immediate impact on Mount Barker.

Phil: Transformation.

Bernard: Transformation. And when I saw that I thought, it just changes perception. The model of life suddenly becomes easier. And the value, the intrinsic value of this absolutely gorgeous community up there, beautiful. You know it's not for everyone, if you want the hipster thing, you're down in town. But some people want that tree change  thing. And if you can get to work within 30 minutes, which is considered a long commute in Adelaide, and it's easy, then why not?

            There's an enormous number of big picture pieces of infrastructure that are under construction today that will change the value of areas associated with that.

Phil: And was that negative and positive, so the people that lived up there didn't want everyone, making it available for everyone. So, we'll get back to Sydney very quickly, because we're here right now. But, there's been a lot of talk for years about opening up the Northern beaches with a better tunnel, or a better bridge over the Spit Junction, right? And you have some advocates of that saying, yes, please do it, so it makes Sydney a lot more accessible. Then you have a lot of people saying, no, no, we don't want that, because that means we're going to change the dynamic of living up there. We don't want a train line, we don't want anything, right. So, it's-

Bernard: Well, there is a catch-22. Look, I think that that is always the case. I'll often identify a place as a sea change or tree change town, and the local community will chide me. Not that they'll be really cross, they'll gently chide me. "Don't tell everyone about our secret!" But in fact, if a big picture piece of infrastructure is completed, it will change values.

            Another one that I'm particularly interested in is the Metro Tunnel in Melbourne, which will go from North Melbourne through the CBD, through the Domaine, to South Yarra. Heartland, heartland Melbourne, in fact. That must change property values at North Melbourne, it must change property values in South Yarra. Now, South Yarra's already pretty pricey. But, if you can imagine living the lifestyle, you walk the town ... I'm from Melbourne, so I'll talk Melbourne for a moment. So you walk the town in the morning, then you jump on the subway, and you're in Collin Street in three minutes. I mean-

Phil: Pretty good.

Bernard: This is the Parisian lifestyle, in fact. What is the value of that? The other thing that I would looking for is this idea of accessibility. I particularly like North Melbourne, not just because of the metro, but because a number of railway lines converge on North Melbourne before going into Spencer Street or Southern Cross. Where railway lines converge into a central place before going into the CBD, hang around that central place. Because, jobs, and workers, and consultants, and advertising people, all those hangers on, will want office space around there. So, North Melbourne, Sydney does it at North Sydney, of course. And the other one in Melbourne that does it is at Richmond, where the lines separate to Burnley, and at Burnley to Glen Waverley, and the Lilydale. And of course Richmond is becoming one of the hottest start-up focal points in Australia at the moment.

Phil: So this is another, so to our point, job growth, big tick. Wage growth, big tick. Infrastructure growth, essential.

Bernard: Infrastructure growth, or just track convergence points near the CBD. So you find a big, healthy, job growing piston, and then you look for convergence points nearby. Now, over time that must have more value.

Phil: This is convergence in people, or infrastructure, this whole convergence principle, what else should you be looking for in terms of convergence? What else converges to help positively push values up?

Bernard: Well, I always feel that it starts with jobs, extends into existing or planned infrastructure, and then look for transformation. Cultural transformation, in fact. That is where you start to see gentrification. That's the best example, gentrification of [inaudible 00:25:19] in Melbourne in the 1970s, and of Paddington in Sydney in the 1970s or so. That's certainly a great point.

            I have this line around treechange communities. A good one was Mount Barker with the Heysen Tunnel. But you need to be within, say, 60 minutes drive, 90 minutes drive, Bowral is a good example. Or Macedon outside Melbourne, Hahndorf outside Adelaide, of course. In a treechange community, it's got to be hilly and undulating, no one treechanges to the flat wheat belt. It's got to be pretty.

Phil: It has to be pretty, yeah.

Bernard: It's got to be pretty. Environmental amenities, you want environmental amenity, you want a historic main street, you know, with verandas, the whole picture post-card type thing. And the absolute pinnacle, the maraschino cherry on top, is where you have a big rate celebrity from the 1980s has retired there. "Ah, I remember that person from some game show 30 years ago." It's sort of confirmation that this place has cache.

Phil: Let's bring up this 'B-word', this bubble word. The sky is going to fall in, we're told, from our international colleagues, the IMF, numerous different bodies around the world that says our property's horribly overpriced, particularly in Sydney and Melbourne, Brisbane to some extent. And it's only a matter of time until all falls apart.

            Now, to one of your points, you've said that Sydney's quite unique in that it's percentage of migrants versus everyone. It's completely unique. We're a different sort of case down here in Australia. What's your view on this bubble thing, is everything about to come unstuck or are we looking pretty good?

Bernard: I think it's a brave person that says we're looking pretty good.

Phil: Yeah.

Bernard: But I do think that the way this will play out is that there will be places of oversupply where values soften and fall. I don't say plummet, but subside is more the way I would look at it. And then simply go sideways. And I think Sydney went sideways after the Sydney Olympics, in fact. All of that energy sucked into Sydney, '96-2000. Then the city just went sideways for five or six years. And I think that the same logic applies, subsidence in places, and then just sideways until the market, and spending, and wages growth, grows.

Phil: And obviously there's markets within markets, Sydney's had a pretty good run. Melbourne's had a pretty reasonable run, Brizzy's having a pretty good run at the moment in terms of pricing increases.

Bernard: Yeah.

Phil: Perth, on the other hand is struggling.

Bernard: Struggling a little bit, yup.

Phil: I was out ... I think it was, I think you spoke at one of our events and I was about to go onstage and do a pitch for some real estate’s agents, and someone pulled me aside and said, "You know how bad it is out here for real estate agents, it’s pretty miserable." So, Perth struggling at the moment, although that's sort of, mining boom orientated.

Bernard: Yeah.

Phil:    How do you as a property investor, other than reading your column and some of the great research that you guys do, how do you keep connected with this data, which just gets thrown at you all the time. To actually use it, interpret it in a way in which you can actually make informed decisions. And something I struggle with in investment, a lot of people struggle as investors.

Bernard: I always look at the bigger picture. You very rarely find the smaller picture being at odds with the bigger picture. And the bigger picture, I think, is set by broad demographic trends. If a state is growing, then that's a pretty powerful driver of the demand for property. If you're looking at 2012, Perth added, I think it was 72,000 people. In one year Perth added 72,000 people. It had never added anything like that. If you weren't making money 2011-2012 in Perth property, then you're hopeless. Because the market was absolutely booming at that time. Today, Perth is growing by around about 25,000. So it's almost cut to a third of what it was. It's still growing, but it's not growing at that pace. I think that pretty well sets the bigger picture agenda, in fact. The bigger picture demographic. And then you can look at areas of infrastructure growth, and workforce growth, and so forth. But if the bigger numbers pushing against you, it just makes it harder.

            Having said that, there can be markets within markets. And Perth's Southwest for example, south of Mandurah, so Busselton and Bunbury. There is still a market for that lifestyle, treechange, you know, the Mount Barker type model. And you might have worked up in the mines, yeah okay, it's come off the boil, but I've done pretty well and I want to just retire down there. I might dabble in this or dabble in that. And a lot of people making that decision, then competes up the value of that property in that area.

            So, it's being able to see the bigger picture narrative. This is not really, really hard. I actually see it as being quite easy. But you need to get up high and ask those big, fundamental questions. And put together the narrative that way.

            Western Australia will come back. It's a third of the Australian continent, incredibly rich with resources. It has energy, it has minerals, it has agro-business, it has all of what Asia and the world will want increasingly. It's just a question of how long. And Perth can lay dormant for maybe ten year. But at some point, I suspect in the 2020s, maybe towards the middle of the 2020s, then Perth will go through its next phase of growth and development.

Phil: Mm-hmm.

Bernard: As an investor, are you happy to wait? That's the question you have to ask.

Phil: Well, time is a good thing when you're investing in properties.

Bernard: Yes, exactly. I mean, look, that's the point. If you want to be in and out in two or three years, it's a dangerous space to be in.

Phil: It is. Bit of a personal question, and I'm intrigued with this. Imagine looking inside your brain, it'd just be numbers and all this repository of information. How did you end up doing this? You're the leading mind when it comes to demographics and the Australian marketplace, and I guess, translating that into a global perspective. But, how does this happen?

Bernard: I actually trained as a history and geography school teacher.

Phil: Okay.

Bernard: Never taught. And then went back to university and did a Masters degree in urban growth and development. Looking at the growth of Australian cities, which gives me that 100 year perspective. I'm equally as comfortable talking about Australian cities in the 1880s as I am in the 1980s, or today, or into the future.

            Then fell into an advisory business that did feasibility studies for shopping centres. So, every shopping centre that's planned, grown, or developed, or whatever, needs a demographic study of the catchment area, the number of people, its rate of growth its ... How many old people, how many young people, how many migrants, all that sort of thing. Which determines the amount of floor space in the shopping centre. I did that for four years and worked out, you know what? This is all driven by demographics, actually, all of property is driven by demographics. And started to talk about that. The property investors, the developers, got it straight away, and responded. And I was invited to this conference, and that conference, then to write in this trade magazine, and then that trade magazine. And it just, you know, I suppose being able to remember figures, and being able to see a narrative, I think that's the thing.

Phil: Narrative is key.

Bernard: The thing. Being able to get out really high, and say, you know what, this has happened in the West before. And it's about ten years. It's being able to see patterns in the numbers. The numbers are boring. It's the narrative and story behind it that people respond to. And rightly so.

Phil: You've probably got one of the most unique positions and platforms to look at property investment. Do you invest in property? Are you a property investor?

Bernard: Well, yes we have property investment. We have a home in Melbourne, which I'm very pleased with, it's been a good investment. And one investment property. And again, I'm not a hugely wealthy person, you know, raising a family and all that sort of thing. I'm not totally focused on building a property empire.

Phil: Yeah.

Bernard: I'd love to but-

Phil: Yeah. Well you've got the tools to do it. Wish I could borrow some of that, you might be my turn to guy.

Bernard: You know, years ago, when I wrote my first book, I talked about the sea change shift. That was like, 2002. By 2003 I was on the speaking circuit, a year later. And I was at this event, and this guy came up to me and said, "Bernard, I got your book, saw about the sea change shift. I invested in this coastal town and I've absolutely made a fortune! Thank you so much for that." I was really quite taken by this, I went home and told my wife, and said, "You know, this guy came up, he bought my book, he followed my advice, and he's made a fortune!" She said, "Why didn't we do that?" I found the solution, I just don't tell her now.

Phil: Keep it quiet.

Bernard: Keep it quiet, that's right.

Phil: That's good. You know you've been really accommodating with all of my questions, and given us some great insight, so I do appreciate it. I know that you're quite prolific in the information that you put out into the marketplace. You've got your piece in the Australian, which is every Saturday?

Bernard: Every Saturday in the weekend Australian magazine, and also in the Inquirer section, I have 'Salt on the Census.' Methodically working my way through the riveting census results of Australia.

Phil: Brilliant. And if people want to find out more about your stuff, can they go to-

Bernard: Thedemographicsgroup.com.au

Phil: Okay, brilliant. I appreciate your time.

Bernard: My pleasure, thanks Phil.

Phil: It's good fun. And thank you, because I use a lot of your information in shaping my narrative.

Bernard: My pleasure, my pleasure.

Phil: That's great. Remember to check out smartpropertyinvestment.com today, if you're not subscribing to your daily market intelligence news, please do. Smartpropertyinvestment.com.au/subscribe. We'll write some pieces up online about this chat as well, and some other information. And we'll get Bernard back at some point in time as well, to share his insights into property investment. Brilliant. Remember to follow us on all the social media channels, Facebook, Twitter, LinkedIn, first to know. Got any questions for myself, or any of the stuff that was spoken about, email our team editor at smartpropertyinvestment.com.au. We'll be back again next time, until then, bye-bye.

Speaker 1: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs, and should not be relied upon. Before making any investment, insurance, tax, property, or financial planning decision, you should consult a licenced professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.

 

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