The dreams of purchasing properties to create wealth through a portfolio is the goal of property investors, yet the realities of purchasing properties can sometimes creep up on us and push us into debt.
CEO of Positive Real Estate and managing partner of Richardson and Wrench, Sam Saggers, chats to Smart Property Investment about the skills of being an investor, how holding a property in the long term as opposed to selling too quickly is better for investors and reveals what he thinks will happen to the property markets state by state in the future.
Sam explains his take on slower growth in the market and how it will impact investors, his take on the so called property crash as well as his advice to investors revealing the ‘big three’ points he looks for before purchasing a property.
You will also find out how to know where to look for property, his hitlist of places to invest and how supply and demand impacts the growth in the markets.
If you like 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: Facebook, Twitter 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:
RELATED AREAS OF INTEREST:
Investors continuing to leave market and be replaced by first home buyers
The impact the major banks are leaving on investors
APRA chairman sets sights higher on ‘improvements’ to lending
Big NSW suburb ‘negative growth traps’ to avoid
Announcer: Welcome to the Smart Property Investment Show, with your host, Phil Tarrant.
Phil Tarrant: G'day everyone, it's Phil Tarrant here. I'm the host of the Smart property Investment Show. Thanks for joining us today.
We've got someone in the studio who you might be familiar with. If you've been knocking around in property for a little while, I'm sure you've heard of this gentleman, and the business he works within. He's a good friend of Smart Property Investment. We've worked with him over a number of years. Sam Saggers, who's the CEO of Positive Real Estate. He's also the Managing Partner of Richardson & Wrench Projects.
Sam, how you going?
Sam Saggers: Good, Phil. Thanks for having me. Always a pleasure to come along and a big fan of the show, so yeah, happy to be sort of talking.
Phil Tarrant: It's probably remiss of me, I haven't been in contact for about six months or so, so it's pretty bad, right? You used to be one of my go to guys when it come to just getting a read on the market. It's good to reconnect again, mate.
Sam Saggers: Well, it's nice of you to reach out and think of me. We are neighbours, our businesses are sort of next door to each other, so it's nice to see you again.
Phil Tarrant: Well, let's get more of you on the show.
For you guys who aren't familiar with Sam, typically if you've ever searched for property you've probably seen one of his adverts pop up on Google Search, or something or other. Sam works across many facets of property investment. He obviously does his stuff with Richardson & Wrench, but before we get going Sam, do you want to let our guys know what you do?
Sam Saggers: Yeah, sure. I've been a property investor now for about 17 years, along the way simply learned some tools and created some solutions for property investors. Today I run one of Australia's largest investment companies in property, that's Positive Real Estate. Really, what we do is help people find solutions in all things property, whether it's purchasing a property, whether it's managing a property, financing a property, renovating a property. We educate people and help people along the way.
Then over and above that I'm sort of involved with Richardson & Wrench, which is Australia's oldest real estate agency, and really that has a residential focus. It's quite nice working in both investments and residential because I get to see a real broad mix of marketplaces, broad mix of people, and yeah, I get to buy a bit of real estate along the way, which is always nice.
Phil Tarrant: You still buying, yourself, at the moment?
Sam Saggers: Yeah, I am, I am. I had a goal to reach 20 properties in my portfolio, and I got to 22. I recently sold some, I'm back to 19. I've got one which is off the plan at the moment, so I'm sort of waiting for the construction phase to finish, and settle that property. Look, I'm a big believer in 'buy and hold' strategies, and today I'd probably have, I guess, one of the most interesting buy and hold portfolios in the country. The real estate value's near on sort of $15 million worth of assets, and you know, I've been successful through developing or anything more than really just buying real estate, making sure the rents are strong, and holding onto it. Yeah, I'm pretty proud of that fact. When I sort of fast forward I think I'd like to see my $15 million property portfolio become a $30 million property portfolio, literally by holding onto what I've created.
Phil Tarrant: Well, you're not an old guy, so you've probably got at least a couple more market cycles.
Sam Saggers: Yeah, I'd say so. I'd like to think so.
Phil Tarrant: Three or four before you end up six feet under, right?
Sam Saggers: Yeah, absolutely, yeah.
Phil Tarrant: You're talking about the principle then, I guess, of property, I suppose, the value. The double in value every 8-12 years. It's a loosing that gets bandied around all the time, but historically that's sort of about right if you're buying the right stuff. If you wait now and don't do anything else, you should see that portfolio continue to grow.
Sam Saggers: Yeah, well I think the hardest thing for property investors is actually holding the real estate. People fall in love with the idea of buying real estate, and what I find is most people, once they own it, really the reality check sort of kicks in.
I had a friend who's recently bought in the Sydney marketplace. As we know, Sydney's quite expensive. She bought down in Manly. She was really excited about purchasing, and now she's taken on a little bit of debt, and paying a mortgage every month. All of a sudden is probably having that sort of buyer's remorse kind of thing going through her head.
I find that the skill of being a great property investor is being able to actually hold the property, not so much buy the property, because investing in real estate, it's actually a marathon. It takes time to become quite wealthy from it.
There's certainly stories of overnight success in real estate, but I find if you do actually just follow the principle of long-term investing, property is very reliable. What isn't reliable is actually people. People are always changing their mind about things, being uncertain, people get divorced, people pass away, all sorts of elements impact the property market.
For the most part, if you buy in a good location, safe and sound, you can wake up 10 or 15 years later and your property will be worth obviously more than what you paid for it.
Phil Tarrant: That's the idea, right?
Sam Saggers: Yeah, so I kind of teach people to go and play golf and just leave it alone, you know, because most people are quite nervous about owning real estate. It actually makes them very anxious.
Phil Tarrant: So, you've helped me out there, Sam, because if you haven't tuned into this My Property Investment Show before, or even if you're a long-term listener, these things are very raw and unscripted, and so you know what happens: I said, "G'day, Sam, how are you going? It's been a while," et cetera, and then we just jumped straight on air. What Sam's done there is help me frame how I'm going to run this particular podcast. There's two ways I can go with this.
The first one is to talk about Sam's portfolio, which I think is really exciting, and he's spoke about a couple of key principles in terms of creating wealth through property, through buy and hold strategies. There's a mixed bag of some development stuff, some off the plan stuff, some whatever.
I think, considering where we are with the market right now, I might steer this particular podcast, rather than talking to Sam as an investor, I'm going to talk to him as a guy who helps other investors do what they do.
Sam, are you all right to go down that path? We'll get you back in a months time-
Sam Saggers: Absolutely, yeah.
Phil Tarrant: ... because I want to talk about your portfolio, and I'd like to unpack it and tell that story, but we can't do it in the same thing. It's going to be too long, so let's talk about what you do for a job, rather than the fact that you're a property investor.
So, your job, as you outlined, is that you help Aussies do everything associated with property, which is pretty broad. I'm quite familiar with some of the components of your business, and some of the education you undertake, and also some of the services you provide investors. You've been around for quite some time.
The market right now, so there's a lot of fear. You've got Harry Dent doing the rounds at the moment telling everyone that we're going to see a crash in the market akin to how it was with the Wall Street Crash in the 1930s, everyone's going to blow their dough, everyone's going to be destitute in the street, we're going to have 25% unemployment, no one's going to be able to get a job, the world's going to cave in, right? That's one view at the moment.
Then you have the view of the Reserve Bank, and our regulatory bodies who are saying let's just try and slow down property investment a little bit, that the rapid price growth, particularly in a couple of markets in Sydney and Melbourne. Then you've got the realities of securing finance at the moment for the banks, and they're a bit hesitant to, oh, well they're slowing down their lending. Then you're talking about softening markets in Sydney and Melbourne.
What that says to me is that no one knows what's going on, Sam. What do you know what's going on with property at the moment? What can you tell us?
Sam Saggers: Well, look, if anyone tells you they know what's going on, they're probably lying. I'll do my best to unpack some of the things you've commented on.
Firstly, I guess, so Harry Dent. You know, of course the doom-gage philosophy is all about Harry and he makes an income out of that, and that's-
Phil Tarrant: Sells books.
Sam Saggers: Sells books, and certainly gets eyeballs to his database.
But I do think Australia is such an interesting country when it comes to really understanding its marketplace. I always like to go big picture with this, and try to drill down as to where we are. You know, Australia has a business plan. By 2051 Australia wants 40 million people in its country. It's taken 225 years for Australia to reach 25 million people, but it's only going to take another three decades for Australia to actually reach that milestone of 40 million people. That is fairly significant. We're very, very lucky we live in a country where other people want to come and live, want to migrate, and locally we're growing our population as well.
This has created a real, I guess, level of opportunity for people in Australia, but also creates a very disruptive marketplace. It's fair to say the last four years of trade, particularly in Sydney in real estate, where property values have really pushed breaking point, that lots of people are perhaps taking on too much debt. The regulatory authority coming in and prudentially making it a little bit more difficult to borrow money is such a smart thing to do because it preserves the longevity of real estate in Australia.
For a long time investors and investment experts, all of us, were involved in suggesting to people, get an interest only loan, and hedge the market goes up. The banks today simply want us to pay down our debt, and I don't think that's an unreasonable request when you borrow money of a bank.
I think it's just a matter of the market is going into a new phase of what is normal. What is normal today is interest and principle lending, paying down debt, and being scrutinised when it comes to borrowing money.
I don't think the market will have much of a correction. Perhaps in Sydney it will dip a little bit because it's been very expensive for a very long time. I'm sure if we tracked the overall capital growth in Sydney, once a minor correction comes in it will still be very, very handsome. In other words, the property market's doubled in value, it might pull back by 5%, so overall you're probably up 95% in wealth.
So, I think for investors, there's massive opportunity at the moment, and we're seeing for the first time a different buying behaviour come into real estate. A buying behaviour that was prevalent probably back in 2006/2007. That is simply that buyers now have a little bit of choice in the marketplace, and they can negotiate some favourable terms, and get themselves a pretty good deal if they know where to look and where to go.
Phil Tarrant: Okay, so where to look and where to go. That's the holy grail of real estate, right? You want to buy property as cheaply as possible in locations, which are going to grow as quickly as possible, right? Fundamentally, that's what you want, and you want to be able to hold onto that property through fair yield cash flow, et cetera? That's what everyone wants. That's what everyone wants.
Sam Saggers: That's what everyone wants.
Phil Tarrant: So, before I go there, you spoke about a correction in the Sydney market, and potentially in Melbourne. I saw some data come out last week, it was a webinar actually that I watched from Peter Koulizos, who's on the board at PIPA, and he did a thing. He's petty much just looking at data coming out of ... Corelogic, sorry, not RP Data. RP Data, Corelogic. He was pretty much saying, essentially the numbers were historic growth in property over time, right? There was means and medians, and all this sort of stuff. Anyway, Sydney's pointing to slower growth.
People talk about a correction, and I think it's important for people to understand the difference between a correction and potentially slower growth.
Slower growth means it's just not growing as fast as what it was. IS that a correction, or is a correction, you know, the property is overvalued and therefore it will devalue itself, as in have negative growth to a particular point, which is its base normal right now?
Can you explain the difference, Sam.
Sam Saggers: Yeah, well I think you've nailed it. I mean, at the end of the day, obviously if growth stops, real estate has been quite inflationary here in Sydney, we've seen an abundant amount of capital growth, and if that was to go backwards in value from its market peak, that's certainly a slow down and, one could argue, a correction in pricing.
We won't certainly see a full scale market bottom correction where property prices plummet from a market high back to where they were below the last market cycle. In fact, in Australia, according to the statistics through RP Data, there has been no cycle where a property has actually been less expensive at the start of the next cycle.
So, typically they're rising in value, and I think in Sydney, if I was to do a minor forecast, I would say at the most you're going to see a 5% adjustment in value. Call it a 'correction,' or just call it 'property prices were a little bit too expensive to begin with.' We are seeing that.
I mean, through my residential affiliation with Richardson & Wrench, we've got over 105 offices here in Sydney. It's a household brand here, R&W. I do get to see some of the sales figures. You are seeing less people coming to open homes, less people involved in bidding at auction. You're even seeing some properties actually that could have sold for, say, 1.5 this time last year, being now around the 1.4 mark. You're just seeing a little bit of heat come out of the property market and that's got a lot to do with the fact that, for the average person, they're going, "Hang on a minute. There's been a lot of capital growth, maybe it's a better time to just sit back and relax."
Funding, of course, is a little bit more difficult the way lending is calculated. For the most part, let's face it, Sydney, if it's an example of property success, I would continue to invest here over the long-term. Sydney is now 5 million people. It's a very huge marketplace in Australia. Within the next three decades, it's well on its way to becoming a city of over 8 million people.
When it comes to sheer metrics in real estate, it is a game of supply and demand, and long term Sydney is, I guess, the number one choice to own real estate. I think if you are going to be a property investor, or call yourself a 'property investor,' owning real estate in Sydney is a very, very smart thing to do.
Phil Tarrant: We've alluded a couple of times to the requirements, regulations, guidelines, from APRA to the banks, to try and get greater clarity around mortgage lending, paying down debt, trying to reduce the debt levels of Australians. We've only really touched on it, but if you want more info on that go and check it out. We did a long podcast on the 8th of February, where we spoke at depth about that. If you want to know more about that stuff, I don't want to go back over old territory, go and listen to that and you'll hear everything you need to know.
What Sam's talking about here is the Sydney market, in particular, and we'll get to some of the other states as well because I know you operate across Australia, and some of the flak I cop on this My Property Investment Show is that some people think we're a little bit too Sydney and Melbourne-centric, and you know what? That's just the way it is because that's where the most people live, right? But we do cover other markets and I'll get Sam to do that.
The fundamentals you're pretty much saying about the Sydney market is sound. They might have come back a little bit, but historically it's not going to go back to where it was when this cycle started. It's jus going to normalise a little bit, and then-
Sam Saggers: Well, that's right. Look, I do spend a lot of time in Melbourne, and I spend a lot of time in Brisbane. I can comment on those marketplaces. Certainly within Melbourne we are seeing some exciting levels of growth, and it's probably fair to say the discretionary end of the real estate market, the $2 million house range, that type of marketplace is certainly the leading indicator of growth for the less expensive properties in the market. It's probably fair to say you might see a moderate slow down in the higher end of the real estate market in Melbourne.
What we are seeing is a real shortage of stock at the moment. Stock levels have dropped dramatically. Land in Melbourne is very, very difficult to acquire for people. Land releases are being sold out in record numbers.
Phil Tarrant: Are you talking about the stuff out further afield?
Sam Saggers: Yeah, yeah.
Phil Tarrant: Because there's so much land down there though.
Sam Saggers: Well, it's actually very difficult to produce at the moment through the planning instruments in Melbourne. Sometimes local buyers are waiting two years for the land to be parcelled, titled, registered, so they can eventually build their family home on land in Melbourne. It's actually the most under supplied market in Australia today, the Melbourne land market. The capital growth statistics that have recently come out are very, very encouraging, so there is opportunity in Melbourne. We are seeing, for the first time, movement in apartments in Melbourne.
In about 2007, we saw the last market high in apartments in Melbourne, and really, apartments have gone fairly well sideways ever since for a good 10 years. Last year's statistics alone in apartments in Melbourne, there was a rise in value close to 10%, and we are seeing that square metre rates are on the move in Melbourne. In other words, to produce new stock is costing more for developers, and I would imagine on average this year prices will accelerate ... For an average perhaps one bedroom close to the city centre of Melbourne, you could probably purchase that circa $400,000, which seems very, very reasonable to a lot of Sydney people. I'd say that by the end of 2018, start of 2019, that $400,000 will actually become a $450,000 property.
We are definitely entering a new phase of Melbourne's apartment market. It's probably fair to say Melbourne had a saturation of apartments really as it reshaped its city itself. Melbourne went from sort of not having an inner urban, residential market to creating it, starting around 20 years ago. Today if you walk the streets of Melbourne at night, it's alive. It's one of the most fun cities in Australia.
Phil Tarrant: I agree, yeah.
Sam Saggers: Much more alive than the city centre of Sydney. That's because, for the first time in the history of Melbourne, people are now choosing the residential apartment space to live, close to what is a 24 hour city. It's becoming that New York-style concept.
A lot of these apartments are, for the first time, actually being absorbed into the marketplace, which is fantastic for capital growth because not everyone can afford a house, and of course many investors have pushed into the apartment space by share of what they can borrow.
Phil Tarrant: So, you're talking about there the principles of supply and demand. 10 years ago, I guess we're sort of talking Docklands way-
Sam Saggers: Yeah, Docklands way. Yeah, yeah, yeah.
Phil Tarrant: ... St Kilda way. All the talk was everyone was building apartments, there was an oversupply, you look at one of these buildings at night time and you see a handful of lights on, no one's in there, investors have bought up all these places off the plan, they've go no growth whatsoever, a lot of people did their dough sometimes. Some of the challenges of buying off the plan is that you pay X for it when it might get valued at Y. That market's now changed in Melbourne, is what you're saying?
Sam Saggers: Yeah, yeah.
Phil Tarrant: It's changing to now there's more demand than supply.
Sam Saggers: Yeah, for the first time in a long time local residents are now choosing to go and live in these areas. The absorption of locals is really the key fundamental behind the revival of apartment living. Obviously when people are now choosing vertical living as a concept, the levels of stock certainly start to disappear. You don't need the investors to produce the stock. Typically, when a marketplace is in its infancy, you go and find investors, their capital to produce the buildings, whether they're overseas investors, or local investors, and then it becomes a rental kind of environment. We're seeing that transition now happen in Melbourne.
Phil Tarrant: It's owner occupied.
Sam Saggers: Owner occupied, yeah. It's pretty exciting for Melbourne, and I think it's definitely encouraging for the next wave of growth. When you look at the sub-luxury, or prestige market, or discretionary end of the market, properties in your east of the Yarra, in more of the Bentleighs, the Brightons, the Prahrans, these types of areas, they're now very, very expensive. Melbourne has a large population, 4.5 million people, it's said to become Australia's biggest city in the next 30 years, reaching 8 million people.
All of a sudden people are going, well proximity, should I do the proximity thing and live close to Melbourne's CBD. It's fun. Or should I actually go out, travel a little bit further and get into the land space? It's very, very buoyant at the moment.
Phil Tarrant: If you're and investor and you're considering, and hearing what you say, and my advice would be to stress test what Sam is saying. That's what he's seen in the market, right? You need to go and establish that yourself.
If you're an investor looking at the Melbourne market, and you've painted this picture around these apartments in close proximity to the city, what would be your hit list? What would you be looking at to invest in? One-bedders, two-bedders, car parks?
Sam Saggers: Yeah. Well, firstly I'd like to stress I'm a big believer in land and housing, and Melbourne has a really robust land market. I'm a big believer in Melbourne's very tightly held, what I call 'NIMBY' suburbs. 'NIMBY' means not 'not in my backyard.' There are some planning instruments in Melbourne, which actually identify that certain suburbs are very much always going to be under supplied. They're full of character housings.
The best way to understand it, for a developer to actually develop property in those neighbourhoods, they have to amalgamate three, maybe four very expensive homes, Torrens Title homes. Those homes themselves would be $3 million each. Then what happens is they have a height limit, and they may only be able to build three stories in height.
These suburbs under the eyes or guise of town planning can actually get apartments, but the reality is mathematically they seldom make sense for developers to do. It's kind of the concept of rich people love being rich, and rich people make sure there's no supply in their neighbourhood because if they don't let supply in values tend to increase.
There are suburbs in Melbourne where there's a unique opportunity to get into the apartment space in these really prestigious housing areas, and not really worry about supply. Also, you're very much attracted to the local market that loves these suburbs, the top 20 Melbourne suburbs.
Over and above that, as we know, for an investor sometimes it's about who will want the property into the future. These very, very prestigious areas have very, very affluent people who will downsize. Buying or selling to those people one day, or renting to those people, is very much a way to look at the longevity os your investment.
So, I'm a big fan of Melbourne's, what I call 'NIMBY' market scene. They're very, very pretty areas, very under supplied, and certainly tightly held.
Phil Tarrant: To name specific suburbs, are you talking sort of Tooraks? Brightons, maybe?
Sam Saggers: Yeah, you've got your Tooraks, your Armadales, but then you've got some emerging areas. I would say Ivanhoe, and for Sydney people, Ivanhoe would be the Mosman of Melbourne. You've got these very tightly held areas. For the first time in a long time that middle to inner ring area of Melbourne, in the apartments base, is very, very solid.
I'd probably, as an investor, tend to steer clear of, you know, still Docklands, and Southbank and the CBD. I think there is a little bit more of an evolution to be had in that space, but certainly your Collingwoods, your Fitzroys, your Richmonds, and then your more prestigious suburbs: your Ivanhoes, Tooraks, Armadale. Very, very interesting areas at the moment.
Phil Tarrant: Yeah, interesting insights, Sam, and go and check it out. It's an opinion we haven't expressed on the show for quite some time, so I'm going to have my own look myself to see.
Sam Saggers: Yeah, yeah.
Phil Tarrant: I'm going to go and check it out and see whether I agree with you or not.
Sam Saggers: Absolutely.
Phil Tarrant: But, you know, you're talking about some, irrespective of where you're buying, some fundamental principles there in terms of what creates value in property. It's about uniqueness, it's about supply, it's about all these things. Thanks for explaining that in such depth.
Let's move away from Melbourne, and we may as well go around the grounds because I know you're right across Australia. Corelogic put some info out recently, and I've seen some commentary around it about they reckon that Brisbane's day in the sun is about to come. The disparity in prices from Sydney and Melbourne to Brissie is really going to cultivate a lot of interstate migration, plus Brisbane's looking to cultivate and firm its position as a leading city in Australia as well. What's your views on the Brissie market, mate?
Sam Saggers: Yeah, well in Brisbane I'm fortunate enough to own some residential real estate firms through Richardson & Wrench. I see what mom and dad are up to in their local community. I can tell you for the first in a very, very long time, locals in Brisbane are out buying. The weekend clearance rates are very, very, very high.
For a very long time the sales volumes in Brisbane were being created through investors, and what's so interesting, we've seen the real estate-emergence of just about all the groups that buy in real estate in Brisbane. We're seeing first home owners really absorb new land parcels, building themselves new house and lands in those sort of Greenfield communities. We're seeing the upgraders coming out in droves in auctions to buy the more sub-luxury kind of million dollar price homes, and for the first time in a long time we're seeing downsizes actually trading up and moving to an area where they want to spend the rest of their lief in a lifestyle format.
So, what is fascinating is particularly within the housing sector in Brisbane, the sales volumes are very high and the demand levels are the highest we've seen in a very, very long time.
Housing's probably a much greater lead indicator of success at the moment in Brisbane. Obviously we've all heard last year about the inner city apartment over supply. That is now sitting at a vacancy rate of around 3.5%, which is quite balanced. There's been no real bloodbath to speak of when it comes to people dumping their real estate and losing vast amounts of money. There's been a few isolated cases, but to be honest that happens all the time in real estate. We are seeing the flight to quality apartment market actually produce some fantastic results.
One that I know of, a property in South Brisbane was purchased by an investor for $800,000. They bought it off the plan, held it for six months, it was an apartment, had some reasonable views of the city, and that just resold for I think $1,037,000. So, a $237,000 gain in a marketplace which is being reported to have problems within its apartment space.
If you're finding the right property, and this would be my advice to most investors, is to look for properties that carry the characteristic of being visually very nice, having some behavioural elements to it that the local market want, and behaviour design in investment real estate is sometimes very difficult to create. Behavioural design is things like making sure, you know, the property might have a pool, or make sure the property is close to something fun, good amenity. That element at the moment in real estate is so valuable because there's so much choice at the moment in real estate. There's a new property needing to be produced in Australia every three minutes and 55 seconds to keep up with the population growth of tomorrow. There's a lot of stock, and really the marketplace has a lot of choice.
The big three that I always look for for investing at the moment, whether it's in Sydney, Melbourne, or Brisbane is a visually nice property, a property that offers the occupant who's going to live there some behaviours that are nice and fun and they're going to enjoy, whether that's a nice backyard, a nice balcony, a great view, an amenity like a pool, close to a restaurant. If you've got something that the property can do from a behavioural point of view there's usually a lot of demand.
The final thing I look for is what we call 'reflective design logic.' The reality is people today will pay more for something that is quite unique. It's the concept as to why someone would buy a Prada handbag for $20,000 when it's made out of the same leather as someone's $300 handbag. Reflective design logic is very important in real estate today, and particularly in the apartment space because if you've got something that's quite desirable and people feel proud to own, then it's actually going to do really, really well as an investment. You'll get a top-notch rental return. Sitting in Brisbane, for example, 5.5, close to 6%, when the properties which are not old that ilk are yielding 4%, so as an investor your back pocket is much better actually looking at some of the quality investments in Brisbane.
Phil Tarrant: Okay, I'm getting a wind up from Sam here, Sam our producer, but I'm going to keep going with this, so I hope you're enjoying what we're talking about. We'll finish up around Australia, and I mentioned before, when we get Sam back in to chat at length.
Let's quickly just do Tassie, mate. So, Tassie from what I understand has been the guiding light of 2017; good growth, good yields. Is Tassie done? Hobart done?
Sam Saggers: Yeah, well look, I certainly think Hobart has been the shining light. The capital growth figures are pretty impressive. We do need to take into consideration the property values are quite sort of low there to begin with, so some of those 10% growths on a $300,000 property is $30,000.
Phil Tarrant: The percentage is good but the absolute number is not huge.
Sam Saggers: Yeah, the absolute number's not huge. I look at sort of Tassie as, well potentially if you're an investor, maybe ... I'm a big believer in Australia has two world cities, being Sydney and Melbourne, and two new world cities, being Perth and Brisbane. Australia's business plan is to fill those cities with people. So, from a safeguarding point of view in a downturn Sydney, Melbourne, Brisbane, Perth are probably your better choices.
By way of an example, last year alone over 100,000 people moved to Melbourne. Only 1400 people moved to Tasmania, so it is a big difference from a long term point of view. Certainly some of the returns and some of the short term growth has been really, really nice for Tasmanians, and I'm happy for them because they've been waiting a long time. I've got a business down there and most of the locals have been waiting 15 years for just a little bit of equity to come into their lives. If you ask most of those locals where they're investing, I can assure you it's actually on the mainland because they know how long it was between drinks in their city, Hobart.
So, just, you know, I don't want to put a dampener on it. Hobart's a lovely area and if you can get into the right pockets I'm sure there is money to be made anywhere.
Phil Tarrant: Okay, so send your hate mail to [email protected] .... No, I think that's well observed. South Australia, you didn't mention South Australia, Adelaide in your Sydney, Melbourne global cities, and two big local cities, Perth and Brissie.
Sam Saggers: Yeah, so well when you look at the population forecast, Sydney, Melbourne, Brisbane, and Perth are getting all the people. In 1986 Adelaide and Perth were the same size. Today Perth is twice the size of Adelaide. It really does suffer from economic investment. It suffers from population growth. There's obviously some great places to buy in Adelaide, and I certainly know that there's been some steady growth down there. I would again look at that as an auxiliary market if you're building a property portfolio, not a primary investment marketplace.
The big four for me, I just link it to what Australia is up to and where they're going to put the population because the population becomes the taxpayer. The taxpayer creates the revenue, and the revenue creates the infrastructure, and the infrastructure creates the jobs. You follow where the people are going because everything else follows. If you tend to follow the marketplaces which are sort of not being invested within, well then your investment can lag with their economics.
Phil Tarrant: Speaking of lagging, Darwin hasn't particularly done too well over the last period. Is there any hope for the Top End?
Sam Saggers: Well, I think, you know, it was certainly the shining light of real estate, particularly sort of if you go back to sort of 2006, 2007, 2008. Darwin doubled in value. Very much I think the Darwin success story probably linked to very much that mining market era, where there was a lot of speculation into areas. People got in and there was this sort of saw tooth market. Things shot up in value, and then things declined in value as well.
So, I think I would be again looking at sort of Darwin with a fine microscope. There's only 100,000 people in that economy, so it is really quite small. Essentially, you know, think about Sydney having sort of 5 million people, it's 50 times the marketplace to Darwin, and you can still probably buy in Sydney somewhere for the price you can enter the Darwin marketplace. It's still very expensive for the most part.
Phil Tarrant: Okay, so let's go west. Let's talk Western Australia. Western Australia has got different markets, you've got your sort of mining orientated towns, so your Port Headlands or associated with mining, your Kalgoorlies, you know, all these names that everyone would know. Let's talk about Perth, so Perth pretty much is where all the wealth trickles back to in WA. We've been covering it last year and this year, the Perth market, everyone's got different opinions. What do you say?
Sam Saggers: Yeah, so I do spend a lot of time in Perth. It's such a gorgeous city, it's so beautiful. The only other city I guess, without offending anyone, that's sort of as pretty as Sydney.
Phil Tarrant: Yeah, I agree.
Sam Saggers: It's got a lot of natural beauty, which makes it quite an interesting marketplace.
Phil Tarrant: It's a very livable city.
Sam Saggers: It's a very, very livable city, and it is growing. We are starting to see, for the first time, that Perth, according to the statistics, has reached it's bottom and is on its way to certainly recovering.
What I say to investors about Perth is, what you are really buying today is proximity. Don't sort of expect capital growth immediately, but what you can do is get a fantastic location. In fact, locations are on sale. I say this to a lot of people, you can do what you want to real estate. You can develop it, you can renovate it, you can subdivide it, but you can never change a property's location. In Perth, without question, you can buy some gun suburbs right now at a really affordable rate, and get some of the most prime real estate within Perth. The market has been so subdued and really it is a buyer's marketplace.
You can buy absolute riverfront, absolute city front, you can buy close to the beach, you can buy in some of the most expensive suburbs, and really either within housing or within apartments, get a really, really good suburb.
Perth's so interesting because investors are not buying there, and the sales volumes for the most part actually come through first home owners. 26% of all sales in Perth are through young people getting started. To me, that's a healthy, healthy signal that people are actually staying in Perth for the long term. No doubt we can all reflect on, well iron ore prices are low, coal prices are low, gold prices just increased in places like Kalgoorlie, but the reality is Perth is reinventing itself.
It's opened up its city to become a 24 hour city. It changed its liquor licencing rules, bringing more people into the city itself, it's just opened its new cricket and football stadium, it's investing in urban renewal precincts within the city realm itself, and it's investing in education and health, which I think will start to certainly draw more people to Perth.
We shouldn't forget that Perth really is Australia's major city within close proximity to your Singapores, and your Malaysias, and really the Asian economy. There is a lot of capital that is linked to Perth through Asia, and I think it will become a property powerhouse once again.
My advice to my investors who I help buy in Perth is today is not about getting capital growth in six months time and recycling equity and trying to be all things property. It's about, hang on a minute, we can buy a property today on a marina where you get a boat mooring looking at the most beautiful view of the Swan River, and the most beautiful view of the city. Tell me where you can do that anywhere else?
It would be likened to, for Sydney people, that you could buy, for example, in Balmain, a two bedroom unity for $400,000, or a house for $800,000. You can't do that anymore in Sydney. The proximity is gone in Sydney. Now for an affordable property you have to go 60 kilometres from the CBD. In Perth, you can still be six kilometres from the CBD and buy good real estate.
Phil Tarrant: I think we've done pretty well there, Sam. Tuning in, a testament to Sam. He hasn't got one not in front of him, so all his numbers are sort of rattling out from inside his head, so obviously a guy who is connected with the market that he operates in. You obviously spend a lot of time on the ground checking these places out, so yeah.
Sam Saggers: Well, I do. I'm a Velocity Platinum member and unfortunately every third day is on a plane, but you know, that's the exciting part about property as well. There's so many different cycles, and so much to learn. I'm still learning and hopefully some of my insights today, Phil, were helpful to you listeners.
Phil Tarrant: Mate, very beneficial, and I'll put you on the spot here. If you had to crystallise your view of the market right now, and we've obviously gone through all the different sort of major Australian markets, and there's markets within markets, and every market is different, but can you crystallise your attitude towards investing in property in a couple of sentences for me as of right now.
Sam Saggers: Yeah, look, my view point is, you know, certainly stick to the big cities. Invest for the longer term. Try and make some money on the way in by buying well. Choose a good location because you can never change it. Safeguard your investments by choosing big economies because in a downturn, you know, they're quite stable. Not everything always goes up in real estate, sometimes things do go down or sideways, so crystallise it that way. Make sure you're buying a property which is going to meet the owner occupier market, and do that by understanding there are some design logics around property: make sure it's visually nice, make sure it's got a really good behaviour, and make sure it appeals to the broader market through reflective design logic. You can do very, very well from real estate over the short, medium, long term. If you ever have to sell your property, well there's usually someone there to buy it off you because you've bought something unique, something interesting, and for me that's probably the best advice I can give people.
I think the real estate market today in Australia is very affordable if you actually get out and about and go and see properly.
My last piece of advice would be ... I know there's a trend today in Australia to buy property site unseen. I would actually go and see it. It's very inexpensive to fly around Australia, and there's big differences from one side of the road to another in suburbs. Make sure you pop out there and have a good look at, and sticky beak what you're potentially looking at.
Phil Tarrant: Yep, sound counsel.
We've spoken about a lot of things here, some sort of fundamentals, and probably buy and hold, supply and demand, this sort of stuff, but also your specific attitudes to markets. If anyone wants to challenge you on any of these things you've said, or if they want more info, or get more insights from you, how do they chat to you? How do they find you?
Sam Saggers: Well, look, Positive Real Estate is probably the place to find me. Just Google positiverealestate.com.au and certainly you can link up to my team, and we'll support you along the way. My email address, I'm happy to give it out, [email protected] Flick us an email and I'll endeavour to get back in touch with you.
Phil Tarrant: Write to Sam, give him a hard time and say, "I don't agree with you," or, "Sam, I agree with you, mate, but can you help me out with this?"
Anyway, I appreciate that, Sam, and I'd pick up on that because we've known Sam for many, many years and as he's outlined, he's actually on the ground working in all these different markets. If you want a view of what's going on, and a real take on where you should be looking to maybe channel your attention, and Sam's more than happy to have a chat with you and just let you know what's going on. Actually write to him and let me know how you get on as well. I'll pick them up, Sam.
If you've got any questions, I'm happy to answer them live on air. Let's do that as well.
Sam Saggers: Yeah, yeah.
Phil Tarrant: If anyone writes to you, we'll come back and do that.
Sam Saggers: Write 'em in and we can come back and I can answer them so that ... Potentially, everyone's usually got the same thing sort of brewing in their head, so it's probably a good idea to share it.
Phil Tarrant: Yeah, cool, nice one.
Thanks, Sam. Appreciate it, mate.
Sam Saggers: No worries. Thank you, Phil.
Phil Tarrant: I look forward to chatting about your portfolio next time we see you on the show.
Remember to check out smartpropertyinvestment.com.au. If you're not subscribing to our Daily Morning Market Intelligence, so you're the first to know what's going on in property, smartpropertyinvestment.com.au. If you like social stuff, just search 'Smart Property HQ,' you see what we're up to. Any questions, Sam obviously gave you his email address, was it [email protected]
Sam Saggers: [email protected]
Phil Tarrant: Okay, or you can write to me or the team here. [email protected]
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