On this episode of the Smart Property Investment Show, we invite Phil Tarrant’s business partner Alex Whitlock to continue the chat with Phil, as well as previous episode’s guest Paul Glossop, on their views on the Australian market today, where they see certain areas tracking and if they are investable or not.
They discuss the impact of Labor leader Bill Shorten’s negative gearing reform may have on investors, the differentiation across Australia for interest rates and how to handle the ebbs and flows of them, responsible lending as well as a dive into each state’s property market, how they see their performance and where they see the real opportunities.
You will also hear about what to think about before buying a property, what to do ‘when reality bites’ and the benefits of looking in interest rates.
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:
Negative gearing negativity on the nose
How recent changes in the finance industry will impact you
What are the realities of property investing?
How renovation can improve cash flow
Announcer: Welcome to the Smart Property Investment Show with your host Phil Tarrant.
Phil Tarrant: All right everyone. Welcome to the Smart Property Investment Show. Phil Tarrant here. Thanks for joining us today. You would have tuned in about a week or so ago. I had a chat with Paul Glossop. We did a Q&A session, and we covered a number of different areas. We finished off with chatting about the potential for the scrapping and negative gearing, should the opposition leader Bill Shorten get into Parliament. We left it there and I didn't want to go too heavy into it, but moving forward, it's something that we're going to keep a close eye on and how it might apply to property investors.
But As I said beforehand, I was going to ask Paul back in the studio and pick his brain on the way he sees the world right now in terms of Australia's property markets, and maybe go around the grounds to get his views and opinions on how these different areas are tracking and whether or not they are investible at the moment. I've brought him back in the studio, and I've also asked Alex Whitlock, who is my business partner, works with me on Smart Property Investment for many many years, to join us in the studio just have a bit of a chat, freestyle it up, see where we're going. Paul, Alex; how are you going?
Alex Whitlock: Good, Phil, thank you very much.
Paul Glossop: Very well, mate.
Phil Tarrant: We finished with Bill Shorten, negative gearing.
Paul Glossop: Yep.
Phil Tarrant: You nervous about it?
Paul Glossop: No.
Phil Tarrant: Okay. What happens if they scrap negative gearing?
Paul Glossop: That's what we talked about, is it? What happens in every market that something like that shakes up, there'll be opportunities in other parts of that market. Ultimately for us, is that you've got to be able to afford property on it's fundamentals, taking tax out of the accountability. Now, whether it's going to affect the actual capital growth or the overall value of properties, probably something that I think a lot of the very well-trained mathematicians and people who look at the stats are probably going to be able to look at and give a much more specific answer there. For me, is it going to change how we invest in property? Potentially.
But, are we going to factor something into something we can't control? No. But are we going to factor in how we buy and what are the fundamentals of why we buy? That won't ever change for us, is that property has to be cash flow holdable for the long term, and ultimately has to be bought based on what's happening in that market. Both now, what has happened in the past, but probably more importantly, what's happening in the future.
Phil Tarrant: So what you're saying then, irrespective of market conditions, irrespective of which government is currently sitting in power in Canberra. Irrespective of what changes to legislations take place, the fundamentals of [inaudible 00:02:12] and property are by and large the same, i.e. to actually understand what you can control and what you can't control, and actually understand what you're trying to do with property. Your goals, your ambitions, how you choose to build a property portfolio and the type of assets that you buy to meet your goals and needs. That's cool. We speak about that a lot in the Smart Property Investment Show, but maybe one for you, Alex. You come to the show every couple of months and have a bit of a chat with us.
Alex Whitlock: When you've run out of proper guests.
Phil Tarrant: When we run out of proper guests, when we get desperate.
Alex Whitlock: Wheel me out
Phil Tarrant: No. You know, we've got Paul here, so we must be scraping the bottom of the barrel-
Paul Glossop: From proper guest to propaganda.
Phil Tarrant: But you know, I appreciate your opinion and sentiments towards property, and I know you've recently gone through your own process of securing a new principal place of residence. I watched, quite interestingly, that process that you went through in terms of the level of research you undertook. You knew every single property for sale in that particular market.
Alex Whitlock: Yes.
Phil Tarrant: You were burning the shoe leather. You were doing everything that you should be doing in order to ensure that you could make the best purchase possible. That was in a principal place of residence, right?
Alex Whitlock: That's right, yeah. I love property. I find it fascinating. I don't find it in the least bit onerous or a chore looking at properties. Considering ... Even buying your own home is a different proposition in a lot of ways to buying an investment property. But it's still ... There's a lot of money involved, there's usually a lot of debt involved whilst you're not necessarily buying your own home with a primary goal of seeing it grow in capital value. You still want to ensure you're making a good investment as well as having a good place to live.
So I enjoy the researching property. Yes I did, I went out and visited a lot of properties. I looked at every single property that's been on the market. And I bought, nine months ago ... I won't bore you with the details about where I'm living at the moment, the asbestos death box that I'm renting at the moment. But even now since I've bought, I still look daily at properties that are on the market in the local area, for my own sanity just to know-
Phil Tarrant: Is that for affirmation or buyer's remorse?
Alex Whitlock: You know, I just love it. I love it, Phil. I just love looking at property. What I like doing, because although I've now bought my principal place of residence, I will continue to buy investment properties. And I think it's good experience for investors and property buyers to get that. And Paul, I'm sure, will back this up. To get the differential between what a property is marketed at, advertised at, you get told by the agent, and then you when you look at when the property sells, you follow it through the cycle. So I followed every property in my area, which is Turramurra, since I bought and I continue to look at it. And I'll continue to look at it after I've gone, just because it helps educate me how quickly properties are selling, what it is that makes a property sell more quickly, where agents or vendors are unrealistic about what they're asking. It's just good practise.
Phil Tarrant: So you reckon you got a good deal? Are you happy?
Alex Whitlock: I was nervous, as always. Although I'd done my research, I bought really quickly. Went and looked at it, walked around, you know, it's ...
Phil Tarrant: You say really quickly, but you'd been looking at the market for ages.
Alex Whitlock: I'd been looking at the market, but I spent 15 minutes in this house and decided I was going to buy it. Looked at my wife, went, "Do you like it?" She goes, "Yes I do," so I kept the agent talking, made sure they didn't spend any time with any other potential buyers, and yeah, bang. The offer went in and we got it tied up within a day or two. And then I of course had massive kind of anxiety and regret because I'd bought so quickly.
When the valuation came through, which was not that long ago, because we're only just coming towards settlement, the valuation came through. It's graded on a scale of one to five in terms of risk, and yes, the valuation came through that I'd got ... that it was worth the purchase price, but it came through at a grade two, i.e. not the absolute lowest risk, but the second lowest level, which means that ultimately it's a pretty sound buy. But again, this is about somewhere for us to live, so it isn't just about potential capital growth. I love buying property. It's a pain in the ass going through all the ins and the outs of buying your own place and shifting furniture around and all the other tedious stuff. The good thing about buying investment property is you've got the paperwork to do and the valuations and getting the finances sorted out and so forth, but ...
Phil Tarrant: Yeah, you make a good point there. Simon Street who we spoke about his question, when we last were on the show about ... you know, Alex. Simon was looking to either buy a home to live in or surely invest in property. And you touched on something there where you went, "Oh it's a home, so it's different." It's the emotion of owning a home and what you're going to do with a home rather than an investment property. If you didn't listen to that, it was a good point, go and check it out. It was the last Q & A session I did with Paul Glossop.
Alex Whitlock: Sorry, Phil. I just want to share a bit of an experience. I don't want to interrupt your show and your flow, but, the first property that I bought as an investor, I kind of bought as an owner. And it's an interesting thing about the way that properties are marketed, and I don't have any problem with off the plan purchase. I bought four of them, were the first properties that I bought.
But it's an interesting psyche that they sort of tap into, because they ... The developer positioned ... And I won't go into the names of the developer, I made good money on it, but nonetheless. It was marketed to me as a buyer with, "Wouldn't you love to live here? Look at the panoramic views, Imagine yourself swimming through the lap pool. See the concierge with his fancy uniform?" It's tweaking on the same emotional strings for you as an investor as you would do for a buyer. I think fundamentally as an investor, you've got to think about the investment property not for yourself and would you love to live there? And would you like your friends to come and visit you there? You've got to treat it as if you're buying stocks and shares, where I'm just looking at my return. So anyway, sorry.
Phil Tarrant: No, no, it's good. It lends itself to what me and Paul were chatting about beforehand. It's an interesting concept, and for a lot of people like myself and Paul, and we spoke about this; we rent and we invest. We don't have that principal place of residence, you know. It's where you are in your life will dictate how you choose to approach that particular thing.
But Alex, while I've got you here, and Paul, I want to get into some of the markets in a sec. But what's your view of the moment around ... What's your sentiments towards investing in property? Are you bullish at the moment? Are you nervous about changes? We spoke about potential scrapping of negative gearing. What's your overall take on it?
Alex Whitlock: Phil, I'm not going to tell you anything that I suspect anyone else on the show won't say, at least in terms of the professionals. You know, I believe that it's always a good time to buy property. But it's really about what you're buying, where you're buying, and how much you're paying. We all know that there is no one market; there are markets. But there is one thing, is there is one interest rate, so that's a fundamental influence, is the patchwork markets we've got across this fine nation. And at the moment, the interest rates are so low. A lot of people feel comfortable taking on large amounts of debt. And I'm sure that Paul deals with a lot of people and will better give it more visibility around that.
Fundamentally, you've got a lot of people who are comfortable taking a lot of debt, so I think it makes it harder to find good investments in the current marketplace. However, they are still there. I think that having been through a number of market cycles, what you see happen is there's a jolt in rates. They go up 25 basis points. And I know that lenders tweak them up and down all the time to suit their appetite for lending. But when the RBA steps in and goes 25 basis points, going up, you get this kind of wave, and then the people who are most highly leveraged and skating on the thinnest ice; they take a sharp impact and take a breath, and they go, "Shit, better look at getting out." And you get this little wave of ... just a little influx of properties on the market. And then the ones that are being sold just sell a bit slower.
And then you get another 25 basis point raise, might be a quarter of a year later, or whenever. That's when things start to change. Just again to answer your question in a shorter version; always a good time to buy, but it's harder to find the right properties. I think, as interest rates start to go up, I think those opportunities start to increase. Paul, what's your thoughts on that?
Paul Glossop: As far as where the market's sitting, there's probably two parts that personally I look at where funnily enough, the last six or seven years across Australia's shown such a differentiation between growth in markets and no growth in other markets. Interest rates have started at a height of six, seven percent retail to where they are now, four, four and a half percent for owner occs, maybe a bit less. And four and a half to five percent for investors. And we've seen Sydney almost double. We've seen Melbourne probably 60 to 70% above where its base was in 2012, '13. We're seeing places like Brisbane about 25, 30% above that. Adelaide 25 to 30% above that. Perth, over the last five years, probably about 10, 12% below. Darwin, about 20% below its peak in 2012. Hobart, only starting to see probably about 25, 30%. Canberra, 40%. I mean, all these numbers, and there's no linear line that goes straight to saying, interest rates there, interest rates there, property goes up there.
I think one thing most certainly is that it's given big opportunity for investors in certain markets, but it's always what's happening behind that, and really long term, where are each of these markets at in their growth cycles? I think to that point, it was a recent article. I think you guys published it on your website, Phil and Alex, recently. I can't remember the author, but it really was talking about where everyone's risk is exposed to at this point in time, at a historically low interest rate position. The people most at-risk are owner occupiers. That's the big point I think you raised there, mate, is that investors, as long as they've factored in their returns, ultimately, you get three, four interest rate hikes. As long as they're comfortable with their returns and they've got their buffers in place, they can hold. Owner occupiers, you need to earn more money.
Phil Tarrant: You're absolutely right, and I think one of the big influences is that as an owner occupier, and again, going back to the beginning of the podcast, that emotional getting a place to live, you see it. I have seen it over numerous markets. Obviously over in Sydney where I live, where the properties that are ... Well, now, really in excess of that three million mark. You get people who just overextend themselves because you've been in the historic low interest rate environment. You get told that that's how it's going to remain. All of a sudden things change, and that's when the reality bites, because when you've been used to your monthly repayments either staying flat or going down, happy days. Once you start to get that 25 basis point increase, when you've got a loan of one million, one and a half, two million, or more; that really, really hurts. And that's when I think you see the glut of owner occupied luxury properties. And they really, really take a hit.
Paul Glossop: Absolutely. I think there's some recent data published as of February, or from January, month of January, talking about the Sydney market in particular in the performance over the last quarter, and effectively saying that the top 10 percentile was the weakest performer over the last three months. That's very interesting data, because historically people talk about blue chips, very defensive. It does fine in bad times, it does really well in good times. But ultimately, when you're talking about people being highly leveraged and we've seen a couple of interest rate hikes, if they're investors, then they're the ones who really are distinctly carrying that risk.
For me personally, if I look at where I see opportunity in the market for owner occupiers right now is, we've got dirt cheap money for principal in interest, owner occupier rights. If you're not taking advantage of these next few years, you're the person who's going to be at the most ... probably at the sharpest edge of the wedge when we start to see interest rates rise. If you're not switching your owner occupier-
Alex Whitlock: And I know you're not a mortgage broker, but you obviously understand finance. So having switched ... Sorry, having fixed rates. I've done them before and I've usually ended up paying out more over the course of the loan. But I'm just, again ... And Phil and I have talked about this, about our portfolio, is now a time to start locking in rates? Again, there's a couple of issues here. There's the owner occupier side of things. I've just bought a property that is 2.575 million, which is a vast amount of money. Psychologically, for me to spend that kind of money on a property was really, really tough. It's a little bit over the median value for a four bedroom place in Turramurra, where I live.
But for me psychologically, I've got a huge mortgage to pay on that. Now, the reason I can do that is because I made good money on my previous principal place of residence. Made close to a million bucks on that, because I bought at a good time. But, yeah, I'm looking at those rates, and I'm thinking ... and I've done my calculations based on where rates are now. But I'm just thinking about locking that in for a five year so I know what I'm going to be paying over the next five years. What are your thoughts on that?
Paul Glossop: Yeah. I personally look at the ... say, right now, if you can assure yourself of definitely some future-proofing, and ultimately, variable rates and fixed rates, usually you're going to see variable rates perform slightly better over time. But if you're hedging yourself and saying ultimately, I know I can get this rate and I can afford XYZ on this rate, and you're knocking off some of that principal as an owner occupier, it's the cheapest interest you're ever going to get. And you're going to be getting it at a time when you know it's a variable-
Alex Whitlock: Well, here's the thing. If you've got the discipline ... Let's say that you've got a variable rate now. It's, let's say for sake of argument ... What are we looking at? About 3.59, is that about a good variable rate at the moment?
Paul Glossop: Variable, that'd be real good.
Phil Tarrant: That's real good. For owner occupier?
Alex Whitlock: Owner occupier.
Phil Tarrant: Owner occupier? Your principal interest? Probably threes.
Paul Glossop: High threes?
Alex Whitlock: Okay, let's say 4% then, for sake of argument. And I don't know what the differential is at the moment between fixed and variable. Variables, again, I'm not an economist and I'm not a mortgage broker, but I don't think variables are going to go down any further. So let's say for the sake of argument, you've got a fixed rate for five years at ... Say you've got a variable at four and you've got a fixed rate at 4.5 or 4.8 or even 5.
If you've got the discipline, if you were to pay your mortgage at the fixed rate and have the discipline not to spend that extra money and put it into your principal, and then as rates go up, then you come back up to that level. If rates don't go up, happy days, you're ahead of the game, it's all money in the bank. But I think having the discipline to do that on a regular basis, particularly if your cashflow is tight, is hard. So I think the benefit of actually locking in a rate, set and forget, and at least you know that you're not going to be exposed to that ... kind of the hike as and when and if they do come, and it's got to happen at some point.
Paul Glossop: Agreed, mate. I think this is a key point in my personal opinion from a property space. Probably more so owner occupier, but definitely for investors also, is that a good mortgage broker at this point in time should really be looking at your strategy, looking at your long-term objectives, looking at your cash flows, and that should be really what determines whether you're happy to take on a variable or whether you've got a fixed [inaudible 00:16:48]. Because they're the ones ... This is the time for them to provide really good value. Rather than just a rate, the value is in the advice.
Phil Tarrant: And obviously, we're not providing advice here, this is just general discussion around finance, and as a quick disclaimer, I know it's right at the end of the show, but this is general chat. Make sure you go and speak to someone who knows what they're talking about when it comes to assessing these type of things.
But it's important conversation. Alex, you obviously speak with sophistication on this, and so do you, Paul, because you're doing it every day. People that come and see you, saying, "I need some help buying an investment property. You're a buyer's agent, can you help me out?" How would you gauge your level of sophistication? Are they talking this way? Are property investors today better educated today than what they were five, ten years ago?
Paul Glossop: I think in general, the people who come speak with us in the early stages of buying their first investment property probably aren't at the level where we would want them to be before we started to buy a property. That's probably part of that initial part of our service is to really educate and understand the strategy. People who are probably past that point of first, second, third, property that they've bought, upwards of a dozen properties through us, they most certainly are. And these are the ones who come in, and when we have our regular, probably six monthly catch ups, they've got a very detailed spreadsheet, and you get to that detail-
Phil Tarrant: You hope if somebody's bought that many properties, that they ...
Paul Glossop: Most certainly. But you'd be surprised of many people have ridden a very lucky wave and effectively have just got cheap finance and have just done it on the back of leveraging their family home to 80% and just chucking it back into the market, thinking that that's the way to invest.
Alex Whitlock: But you know what? The thing I love about property is it's forgiving. Look, that doesn't mean anybody that can throw any amount of money at anything and come out smiling. But you know what? It's just a forgiving way for people who don't ... I mean, I personally love property. I love it. but you don't have to be spending all your waking hours researching, doing the calculations, being a real property nerd. The thing I love about property and investing in properties, is you can be a fairly regular person who works and does their day job, and property, as long as you buy well, it doesn't mean you have to be picking the absolute bottom of the market and selling at the top, or having some sort of crazy insider knowledge. Just buying well, be that of your own volition, doing your own research, or choosing to use a specialist to help you with your purchase. I just love it.
Phil Tarrant: That's the problem with property, though, is that it is forgiving if you buy reasonably well and/or if there's a problem, you can hold a property over and at a period of time where it's a challenge, right? Where people who go wrong in properties if they overextend themselves and buy…
Alex Whitlock: The other thing, Phil is, you know ... and you have a team with you. Now, whether you engage a team, just by default, you've got a lender. So you have a partner in funding this property. They're going to probably give you 80% or close to that figure of funding. Now, they're going to have a look at the property as well, bear in mind. You go about it the right way-
Phil Tarrant: It's forgiving in that way, because the lenders don't want to lose money.
Alex Whitlock: They're going to go, "I don't want to buy this, thanks very much." Now, if you're an idiot, you go "Oh, okay, I'll go and find another lender." You know? Or if you're not experienced, that is. You can choose to ignore that advice. If you're new in the game, if a lender is saying, "I don't want to lend you 80%," the lender doesn't want to lend you 80% because they don't believe that if they have to sell it quickly, there isn't 20% of fat to get their money back.
You've got a lender that looks at it. You've then got a valuer that's going to go out and value it. You get pest and building inspections done on it. You go and buy stocks and shares, which I do every time I forget I'm an idiot and don't know how to do them, and I lose money every time, because at the end of the day-
Paul Glossop: There's no vetting.
Alex Whitlock: There's no vetting. But you go and buy property, and you have resources that are there as a standard purchase to help ensure you make a good purchase.
Phil Tarrant: And as an asset class, this is one of the benefits of property also; is that it's not as sentiment driven as other asset classes. People aren't going to sell down everything in a heartbeat, because you just can't do it.
Alex Whitlock: And you look as well ... If you look at shares, I go in and look at what BHP is forecasting in terms of profit, and I'll go and make an investment in shares based on that and where I think they're going to go. And then suddenly, they cut their profit forecast. You're left with your trousers around your ankles. You look at property, if you're looking in a particular area, you as a buyer can go and look at properties for rent on that street. You know what kind of cashflow you're likely to gain. You can't forecast capital growth, but you can look at historics and such.
Paul Glossop: You can fix rates, you can look at your interest and incomes incomes.
Phil Tarrant: There's a lot of mechanisms there. But when you look at properties in asset class, it's in the national interest that the value of properties sustain in Australia.
Alex Whitlock: Absolutely.
Phil Tarrant: You're heard of Harry Dinter, who recently ... Love him or loathe him, telling the world that the market's going to fall 40%. It's going to be worse than the Wall Street crash in the '30s. I'll tell you what. The banks don't want to see property fail as an asset class. We've got our prudential regular, APRA, who's putting in mechanisms to try and temper markets, and control the markets and make sure it grows sustainably. But most importantly, I think for investors, owner occupiers, someone invested in property ... and you touched on this beforehand; that the last thing anyone wants to see is markets fold and owner occupiers feeling the brunt of negative price growth. There's lots of moving parts here, because there's a national interest.
Alex Whitlock: Let's talk for a second here about responsible lending. I think what you're saying is ... just to add a little bit. I'm not an economist, I'm not a property expert, but common sense says to me that I know that ... I know a number of things. One, Australians don't like being in debt or at least don't like being behind in terms of that commitment. They take their deb very seriously and arrears are very, very low here.
Secondly, lenders here are conservative. I’m a pom, I've lived in Asia, I've looked closely at the American market. Just as a journalist, you know, going through when I was working on a mortgage broker publication and looking at the demise of the American property market, and you've got loose lending going on there, and it's been going on for years. Lending here is tight. You've got real tight controls over how money is lent out on property. And you've got borrowers who generally take their responsibilities very seriously. You've also got ... You look at the States and what happened there. The buyers of houses can go back and just chuck their keys-
Phil Tarrant: Nonrecourse borrowing.
Alex Whitlock: ... back and go, "Yeah, thanks very much, see you later. I've lost a bit of money, but you know." Here, you're held accountable. With any forecast about 40% drops, it isn't going to happen here.
Paul Glossop: On that data too, I think this is some pretty ... For me, I always look at the more macro data as far as where our total position sits as a country, from a property perspective. I think the latest numbers, is about 7.6, 7.7 trillion-
Alex Whitlock: Trillion residential.
Paul Glossop: ... in total property residential. And we're talking around about two million, two trillion rather, in debt. And we're talking about just short of two trillion in the share market. Sorry, in the superannuation market. We're talking about just short of a trillion in the commercial market. But long and short of it, our LVRs are sitting sub 25% as a country. As 10 million properties, ultimately, there is sub-25% LVR on that. And we can talk about where the margins sit. We've got a very, very healthy position. We've got a very, very robust economy that comes into play. It may not be wage growth, and essentially, I think that's going to cap where certain markets can grow. But ultimately, we've got a very, very good position in total LVRs. When we've got banking restrictions that don't allow people to effectively walk away from debt, and there's a lot of ramifications down the track, that's going to leave us in good stead.
Alex Whitlock: You've also got a ... Australia is unique. You cannot benchmark it against really any other country in the world. You know, its geographic position in terms of its proximity to Asia, just the attractiveness of living in Australia. You got immigration, and ... Look, I listened to one of your podcasts Phil, with Bernard Salt, which I thought was absolutely outstanding. If you haven't heard it before, I think it's well worth going back and tracking that one down on SPI.
Phil Tarrant: Definitely.
Alex Whitlock: But you've just got this unique blend of people in Australia and the way that the country is growing and shaping, and it's got sustainable forecast for growth. People want to live here. You go along, it doesn't matter where you live in Australia; it is a fantastic place to live, and there's always going to be a desire to move here, and there's be factors that drive the growth. When you look at places in Sydney, or look at two bedroom apartments in Manley, which are going for a couple of million bucks, just look at the place. And there's a host of other markets like that.
Phil Tarrant: To surmise all of this, the fact that you're tuning into this means that you're looking to invest in property, or you're trying to be educated about property investment. Just be careful where you get your information from. It makes good headlines in certain parts of the media for people to be talking about 40% price drops in property that were over-valued. Everything is going to fall apart. The World Bank says that our wage earnings versus the size of property is so skewed compared to the rest of the market. Just be careful where you're getting your info from. We're sitting at a LVR collectively under 30%. The sky's not going to fall in, but you still need to be responsible how you invest in property.
What I want to do, Paul ... We're running out of time, but I want to just quick, quick; I said at the start that we'd just do a quick round the grounds about how you see the world right now. A couple of minutes on each state, primarily the capital city. Let's start in Perth.
Paul Glossop: Yeah. Look, I know we've done a lot of work over the last six months looking into the data, and probably every month when we see some of the bigger data drops come, we're looking through the numbers. I personally work with a couple of larger property management companies who are good friends of myself and my companies over there who run their businesses in those markets. They're excellent barometers for me, because they know ... Well, they're not trying to sell me anything. I'm just there to try and pick their brains in conjunction with data. Vacancy rate's five to eight percent in that middle to outer fringe.
Phil Tarrant: Wow.
Paul Glossop: Yeah, ridiculous. And I think there's a very, very pretty picture, or trying to be painted at the moment. I think we're a good ways off. We're seeing some data come out from jobs in the mining areas of WA at the moment, and they're talking about that as a bit of a renaissance of that market coming again. But until fundamentally we see shifts in how they're going to have people live and be employed and not hedging or hitching their cart to that one big jobs creator, I see that to be a sideways moving market.
Not to say that there's not good value there, but it's all good and well buying cheap. You've got to buy at the point where you start to see some growth. So I think we're still a ways off there. Six to 18 months depending on where the data goes, but we're not rushing into that market any time soon, personally.
Phil Tarrant: Okay. And NT, Northern Territory? Darwin in particular, you spoke about huge drops from its peak?
Paul Glossop: Huge drops. Huge drops from its peak, and I think we've got another 10, 15, 20% to go depending on the way interest rates go, personally. Because I mean, the market there is just over 100,000 people.
Phil Tarrant: Tiny market.
Paul Glossop: People forget that. NT's a huge area. 100,000 people, it's half the size of Hobart. It's a tiny market. And then you say, well, if there's that many people who potentially going downwards in their incomes and then all of a sudden you've got a relatively high income ... sorry, high housing price to start with, I don't see really where the sustainability is going to come, and we're not seeing much changing there. I think the next five years are going to be much of the same, where there's relatively standard slippage in that market. Yields on paper look decent, but vacancy rates are high. And income, as well as available stock on market, is still very high. As far as income's low, stock on market is high.
Phil Tarrant: So straight south from there, South Australia, Adelaide. It's always a steady performer and the rate we're get in the market, will it continue that way?
Paul Glossop: Yeah. Look, we haven't bought ... We make no secrets about we haven't bought in SA or Adelaide. I think that certain markets in there have done okay over the last three or four years. I think it's going to be more of those lifestyle markets, definitely. Sort of that down as far as south of Seaforth, Glenelg, up towards Port Melbourne and then towards the Adelaide CBD, That 10 to 15 minute fringe between the water and the CBD. That's going to be a market which I'd definitely stay in. Outside of that, I think there's going to be some hurt on that market from when we go out to the fringes to that two to three hundred thousand dollar space. We've got some jobs creation issues coming from the Holden Plant closure that's going to continue to flow through that market over the next three to five years.
Phil Tarrant: One point I would make, and it's worth checking it out, is Adelaide is a big geographic area for our defence industries. Defence industry is spending 200 billion dollars then next 10 years. They're building new ships and submarines and all that sort of stuff. A lot of that is going to be built out of Adelaide. Wage growth and new jobs are one of the fundamental indicators of influencing property markets, so it's well worth having a look at that. I don't know if you've seen anything from there. Obviously it's just probably filling in the gaps from the Holden plant, but-
Paul Glossop: Yeah. I guess for us, we look at sheer volume of jobs. From what I've read and what I know, we're sort of somewhere talking between five and six thousand jobs total creation. It's not astronomical. They're going to be highly paid jobs, but are there a lot of them? Not necessarily, and that's probably the point we come to an issue with, is that it's not necessarily going to have a tonne of even middle paid jobs. There's a lot of highly paid jobs, but only a very small amount of them over a 10 year period. Because that 200 billion dollar contract goes out towards mid 2020s, toward 2030 as well.
Phil Tarrant: Yeah, and that's a really good point. Irrespective of where you're buying, it's looking at these basic fundamentals of what stimulates price growth in properties. Infrastructure, yes. Wage growth is important. Job creation is very important as well, so always have that in your back pocket as well. Let's go, Tazzy. Paul, I know you're a fan of Tazzy. Is it all over down in Hobart, or is there still some running?
Paul Glossop: It's not over. In fact, it's probably quite the opposite. I'll give you some anecdotal stuff. Look, we had three off-market options we were working on last week, to be precise, and I lost all three of those properties to someone else buying off-market. Go figure.
Phil Tarrant: An investor? Or …
Paul Glossop: Two of them were owner occupiers, one was an investor. But that market is as hot as I've seen any market right now. And I think, to a degree, look, we're still seeing on sale prices versus ... The big thing that I see, which is still exciting about that market, is there is literally, there is a rental ... There's such high rental demand that it's becoming a bit of an issue from an affordability, and I think there's a bit of a crisis going on for rental accommodation, which is two-fold. A, no one's building enough, so if any builders out there are looking to do small subdivisions, et cetera, very good market from a returns perspective from a cash flow, as long as you pick the right asset time.
Growth has been with days on market, sub 10 days, still. Well, and truly sub 10 days. Vacancy rates, sub 1%. We've seen in certain areas, and Alex, we worked with you on a purchase maybe over 12 months ago that's probably seen over 20% growth in a year, which we wouldn't have expected at the time. We still don't expect it to continue. But that was bought on the premise of about 7.2, 7.4% gross rental yield.
Alex Whitlock: That's funny. That was a ... I bumped into your during a ... I'd just been down to have a look at the Tazzy and thought, oh, I like it down there.
Paul Glossop: And we were buying.
Alex Whitlock: Had a chat, and you went, "Yeah, actually, I quite fancy Tazzy at the moment. It's been a great investment for me."
Paul Glossop: Absolutely. I think where that's going to flow through, and we're starting to see some attention there at the moment. That's been on the back ... and talk about fundamentals. That's been on the back of about eight or nine percent jobs creation, as far as over the last 12 months, which is double any of the other major cities over the last 12 months. Now, is that going to continue? Well, there's been very good jobs creation in the tourism sector, and I think that's going to see some steady flow through the agriculture sector and the natural services sector is still going okay. But again, it's a small market. I don't personally think that anyone should be looking at having their entire market exposed to Hobart.
I think some of the surroundings of Launceston and Devonport, Burnie, will probably see nice flow in over the next 24 months, and they are a lot more, probably, affordable and a lot less heat. So we're talking that sort of sub 250 mark, 7% yield. Do we expect to see them double in the next two to three years? Doubtful. Still get some nice returns. But I think from here, it's a bit of a hedge bet in trying to get some cashflow into your portfolio, if that does demand it at that time.
Phil Tarrant: That's a good diversification plan.
Paul Glossop: Definitely.
Phil Tarrant: Okay. That's fair. Melbourne?
Paul Glossop: It's slowing. Across the board, it's slowing. And I think where the opportunities are starting to really open up to now are a bit more of the regional towns. Ballarat's seen some really good attention lately, and I think that's a hot market. Anyone who's trying to buy in that market right now is seeing that that's a lot of sight-unseen investors, a lot of owner occupiers paying whatever it takes. That's a market that we think has got some good value in that three to three fifty range.
Melbourne itself in general, I think where probably this time next year we'll see it in a similar position to where Sydney is. They're going to see consistent population growth, so it's not going to fall off a cliff, but they just ultimately can't afford to keep growing at the rate that they're growing.
Phil Tarrant: So growth is going to slow.
Paul Glossop: Growth's going to slow. You'll see rental yields start to creep back up, probably within 24 to 36 months after that. But cashflow for the investor is super soft. We're talking, it's only just started to turn the corner, but at the best of the moment, so we're talking 3% gross on a free-standing house. I think the areas even down towards the Mornington, towards Frankston, which has seen very, very good growth over the last couple of years. That's going to start the slow yields of two, three percent.
But there is such as Shepparton, such as Ballarat. Geelong's probably past its peak where we'll see opportunity. I see you smiling, because you've got a story about Shepparton. I know that's what you're thinking about. But they're probably the markets where you see opportunity in. We've stopped investing in Melbourne at this stage, mainly just because we're past the point of seeing value. We did buy a lot there probably 24 months ago. Did really well, but it's probably past the point.
Phil Tarrant: And same situation in Sydney?
Paul Glossop: Similar in Sydney, but I think to your point, Alex, you're talking about people buying homes in Sydney and people rushing into marketing and all of a sudden it's stopped growing, so it's a great time to buy. Be patient in Sydney. Sydney's going to present opportunities. They're not right now though. Unless you're looking to do some development, I think there's opportunities for smaller boutique development sites, around in those more affordable corridors where you can manufacture in a flat market. But I think if you're looking to buy and owner occupy, especially don't rush. There's going to be a lot of choices, going to be more choice, and I think you're going to see more and more of that.
And I think on the back of that, when we look at the Newcastles and the Central Coast, they're probably two markets which have done really quite well, almost equivalent to what Sydney's done over the last three, four, five years. But they're going to probably be about 12 months behind. And then further out towards the other regional centres, further out, Port Macquarie, Ballina, Coffs Harbour; those markets have also done very well. I think they've probably got another 12 odd months in their growth cycle before they start to taper off a bit.
Phil Tarrant: Okay, interesting. The last time we got together, we spoke at length around ... We had a question from ... I think it was someone called Salar.
Paul Glossop: Salar, yeah.
Phil Tarrant: Salar, talking about Kippa-Ring and that sort of Redcliffe area, Mornington Peninsula. You spoke at length around the new train line that has gone in there which terminates at Kippa-Ring. To your point, you know, people talking about investing based on fundamentals and speculation about infrastructure growth; that train line-
Paul Glossop: 2000 years, yeah.
Phil Tarrant: ... has been slated for well over 100 years.
Paul Glossop: More or less.
Phil Tarrant: It was first gazetta saying we're going to build it and talking a hundred years ago there. Nothing happens quickly in property.
Paul Glossop: No.
Alex Whitlock: Or in Brisbane.
Phil Tarrant: Or in Brisbane. Hey, we've got a lot of people ... We've got listeners up in Brisbane, Alex. We want them to keep listening to this.
Alex Whitlock: They're relaxed. They're happy.
Phil Tarrant: What do you like about Brizzy at the moment?
Paul Glossop: I like bigger blocks. I like properties which have something you can add to them. I don't necessarily love probably, certainly the area between the top end of the Gold Coast to the bottom end of Logan. That whole Pimpama region, personally. And not to say that I think people haven't made money out of that. There are people are on maybe some acreage who are probably seeing some really good growth in their assets over the last five years. But there is a lot of off the plans happening in that market. There's a lot of off the plans happening in certain areas down further towards the west around Springfield Lakes in particular, some of the newer markets that are coming out of the ground there.
And probably where we're looking at opportunity in those markets, if switching this rounds, have absolutely strong probably fundamental belief that there is opportunity within those markets, but it's going to be a slow burner. I think in that market in particular, properties that were selling 10 years ago, we're getting 10 year ago price points on established sort of four two twos, which I think is still going to be fundamentally good cornerstone types of properties within portfolios.
Larger blocks, 1000, 1600 square metre style blocks where you can do subdivisions and actively make money in that three to four hundred thousand dollar space out there while still getting some good cash flow. Great opportunities there. And towards the East, I think in that five to six hundred thousand dollar space, in the owner occupier markets, Manly, Wynnum, along the train line going towards Brisbane. I think there's great opportunities in there for people who are buying owner occupier style stock. It's a very desirable market out there in general, but you're going to get softer cashflow. As long as you can afford to hold it, I say that's going to be a market that's going to continue to perform over 10 years.
Moreton Bay in general, I think down towards as low as Bald Hill, Strathpine, et cetera. There's a lot going in that exact market. Be careful to make sure that you understand your flood mapping, your zoning overlays, and any other restrictions that go with that. But we're very confident, very bullish. I personally have invested in all those markets that I've just outlined, as well as some other markets across the country over the last five, six, ten years.
But for me, the next five years, I think Brisbane is going to be ... not necessarily buy anything and it'll do well. Not like Sydney, not like Melbourne has been. Which I think ... Well, Melbourne to a lesser extent because the apartment market is a bit different. But I think that's the part, is that Brisbane's going to see steady growth, but you need to make sure that you've done your fundamental homework, because it's not going to be just a rising tide lifts all ships in that market.
Phil Tarrant: And that's well-observed. I've got to wind up. I'm getting a wind up. This is from Adam here, our producer, but while I've got you in the studio, Paul, we've gone around the grounds, all the capitals. Let's talk about a non-capital. Let's go smack bang in the middle. I'm going to use Alice Springs. Never spoken about as a potential property market, but let's use that as an example of regional Australia.
Paul Glossop: Yeah. Yeah.
Phil Tarrant: We've spoke about capitals. What do you think about the region? You spoke very briefly about it, Shepparton and some of those.
Paul Glossop: Yeah, and I call them all regional hubs rather than proper regional towns.
Phil Tarrant: Regional hubs? What about regional towns?
Paul Glossop: You know, it's funny, because I was looking at ... We're doing some further digging on some of these markets which had really strong upticks in the last couple of months. And I'll give you an example of Burnie in Tasmania, which is tiny. Tiny city, really. I think it's got a population of about 25,000, maybe a little bit less. And you look at what's taken on that town. And then you look at a place like Alice Springs, in the middle of the country. And essentially, it's got an air strip and it's got a couple of tourism hubs that take you out to Uluru and the surrounds.
Phil Tarrant: And a Chinese restaurant.
Paul Glossop: A very good Chinese restaurant, apparently-
Phil Tarrant: Yes.
Paul Glossop: ... which was one of the first to be established. Hundreds of years old, apparently. But really, we're looking at the price points on paper are extremely affordable. And nothing's really moved. I think you and I maybe a couple of years back, or a long time back actually, were in Silverton.
Phil Tarrant: We were all in Silverton.
Paul Glossop: We were all in Silverton.
Alex Whitlock: We were indeed.
Paul Glossop: We're in the birth of BHP. And then we look and talk about Broken Hill and the surrounds, and you can still pick up a house in Broken Hill for 150 grand.
Alex Whitlock: Remarkable game of golf, I remember.
Paul Glossop: I don't know if you'd call it golf, but it was something.
Phil Tarrant: Mining wasn't it?
Paul Glossop: But that's a true representation of fundamentals and why would someone want to come and live there, and how that's going to put ultimately pressure on property? And where is the demand going to come? And there is no major additional employers. And really, when it comes down to that, for us it's saying how much space is available, how much stock is available, and how many more people are going to move in here? That's the only real fundamentals that are going to change ultimately price. Long, long term, if we're talking generational change.
That's the part when we look at more regional towns and we sort of go further out to the regions. It's so hard to see any regional town that's beyond sort of the more mainstream regional towns that shows any other changes in fundamentals that's going to mean within the next 30, 40 years that it's going to be any different to what it is right now.
Phil Tarrant: I'm going to speak to the same. I'm going to do a story on smart reinvestment, document a year round all these different markets. We'll blend it with some other info. We have some findings recently released by Core Logic. I ran price growth for these different areas, and we'll include your observations. Be remiss of me not to include Canberra. You like it, don't you?
Paul Glossop: Yeah, look, within reason. Land tax has always been an issue. Jump outside of Canberra, you go down to a couple of surrounding markets of the ACT that are outside on the fringes, you might well be able to see those places that are commutable to Canberra CBD and you don't get land tax issues.
Phil Tarrant: Okay. Awesome, Paul. Appreciate it, Alex. We've covered quite a lot there. We've gone some of the philosophical stuff all the way through to some hardcore market fundamentals. But what comes clear to me through the whole thing is that it comes down to the fundamentals, understanding what you're doing investing in property. And it's a finance game, absolutely, and there's a lot of mechanisms that you have control over that you can use to influence ... Either it's the mortgage rate that you have or the amount of debt you're carrying, or the way that you choose to pay that off. But it comes down to investing in the right spot, so ...
Alex Whitlock: I'd also just ... Just to round off, just chuck my last two penny worth in, I think just back to your point around not taking too much heat of talk of 40% drops. Be suspicious of all the data you get given. It's incumbent on you to just do your own homework. Give it your own sanity test. Don't rely on anyone else's data, and don't believe the hype. Go away and invest. You've got to have your own comfort level. You know? So make sure you treat everything with a level of cynicism, and operate within your own comfort zone.
Phil Tarrant: Nice. Paul, good one. Thank you. Get back again soon.
Paul Glossop: Welcome.
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