What's in store for investors in 2016?
What is your opinion on the current Sydney property market, and what might happen next?
I think the [most recent] monthly [growth] figure was pretty weak, but I think overall the market’s still reasonably strong. Our view is that we’ve probably seen the peak level of growth in the market and it will still grow, but it will do so at a slower pace from here on. There’s a lot more stock available for sale so buyers have a lot more choice. But we still think growth is going to be pretty strong, just not astonishingly strong like is has been over the past few years.
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So its it still a good time for investors to buy in the Sydney market?
Well I think if they’re chasing capital growth, there’s still capital growth there. It’s just not going to be as strong as it has been. If they’re investing for income, yields are extremely low. So I guess it depends what your strategy is.
Are there any current or future hot-spots in Sydney?
What you’re finding really is the market is still strongest closest to the city. And where the weakness is coming in is some of those outer areas. So it’s really a bit of a variety. I mean they’re all still growing, but the inner-city areas are growing at a much faster pace now than the outer areas.
What are the common mistakes investors make during ‘boom’ times?
Thinking the boom is going to continue forever is probably the biggest mistake. Buying the wrong types of property – and that varies person to person, situation to situation. And I think particularly at the moment, not considering what will happen once interest rates start to increase. That still looks like it’s some way away, but it’s something that you’ve got to be accounting for.
I wouldn’t be touching a mining town at the moment
How do the major capital cities compare to regional areas at the moment?
The regional market I guess is a bit mixed at the moment, so mining towns are obviously very weak [and there's not a lot of demand]. But we’re starting to see signs that there’s improvement in some of those major tourism sectors. So the Gold Coast is showing some growth, Sunshine Coast, Cairns, and obviously in New South Wales places like Tweed Heads, Byron Bay, even Newcastle and Wollongong, we’re seeing growth there. Surf Coast in Victoria. But obviously when you go to markets like Mackay or Gladstone which were previously very strong, we’re seeing weakness there. So it’s very varied much like how the capital city performance is going.
Why are the tourism markets growing and what would make them a valuable investment compared to inner-city dwellings?
Those markets have really shown very little growth since 2007/ early 2008 - since the GFC. So there is some value there now. They haven’t moved for a long time, the prices there. Lifestyle choices as well. There are a lot of baby-boomers getting close to retirement. They might want to invest in one of these markets with the view to move there in the future. But they’re very different markets. And regional markets – whether they’re mining or tourism – these sorts of areas tend to be more volatile than the capital city markets. The big thing driving those markets at the moment I think is the lower Australian dollar, and tourism is coming back into those areas.
You mentioned mining towns earlier, are they completely done or is there more money to be made in these areas?
I wouldn’t be touching a mining town at the moment. I mean in the future there’ll be opportunities but at the moment there’s just not enough demand for the housing that’s out there and it’s very tough for anyone to sell. There are not many people looking to buy – with good reason.
Are there any hotspots that stand out at the moment across Australia?
What we’re seeing in Australia at the moment is that investors are coming into the housing market chasing the capital gains because they’re so much stronger than what you can get in any other asset class. And that’s why people are targeting Sydney and Melbourne, but there are certainly areas to be cautious of.
We know that there’s a lot of inner-city apartment construction going on. We know that rental demand is nowhere near as strong as it has been. You can’t just assume that you're going to get your property rented out for 52 weeks of the year. Vacancies are increasing a little bit. But Sydney and Melbourne are still the strongest housing markets with the strongest growth and I expect that will continue. But I think there are opportunities outside of there.
You can’t just assume that you're going to get your property rented out for 52 weeks of the year
Markets like parts of Queensland, parts of South Australia, have not seen much capital growth for a long period of time. And you tend to find that they do eventually start to follow what has happened in Sydney and Melbourne in terms of capital growth. Now I don’t think they’re going to grow to the same magnitude of what we’ve seen [in Sydney], but there’s a potential upside in the future in those markets.
What impact will the APRA changes have on investors?
Well we’re already starting to see an impact, and I think when you look at the data it looks like a lot of the banks are now trying to grow their owner-occupier side of their mortgage book because they have this limit. So the limit will stop those marginal investors from coming into the market but I don’t think it’s going to be a detrimental change. I mean, investor credit growth is at 10.7 per cent, I think, over the past year. It’s got to get back down to 10 per cent. It’s not like they’re turning off the investor tap entirely, it’s just that they need to ease up a little bit for a while and try and pick up some of that owner-occupier space.
What’s your opinion on the existing negative gearing policy and what effects would the termination of the policy have on investors?
It’d definitely have an impact because I think we see a lot of investors chasing that capital growth. They’d have to focus more on the rental return if there was no negative gearing. But I think at this point in time it’s pretty unlikely that it’s going to be scrapped. If it were changed the most likely thing would be that it was phased in so people who have it now still get it, but any future investors don’t get it. So for people who are currently investors the likelihood is that nothing is going to change for them.
What advice do you have for new investors planning to build a portfolio?
Do your research. Try and buy something that’s unique, in an area that people want to be in. And think about if the worst happened and everything turned bad and you had to sell your principal place of residence, would you be prepared to live in that property? That’s the ultimate test. If you feel like you could live there, then it’s probably a good investment. If you feel like you wouldn’t live there, there are a lot of other people that would consider they wouldn’t live there either.
Does that idea contradict that notion that investors should be buying with their head not their hearts though?
No it doesn’t because if you would be prepared to live there it means that it’s a solid property, it’s reasonable. It’s not about falling in love with the place, it’s just feeling that it’s a comfortable place, understanding what drives the market, what drives rental demand in that market, all these factors.
How can investors be sure that there will be ongoing demand for tenants in a particular area?
That’s the tough part and you’ve really got to be across zonings and what’s coming in the future, and that’s not always the easiest information to get. But it’s available out there if you talk to your councils and get an idea of the potential, what the plans are for the area, and then that can help you make a better informed decision.
