If you’re a property owner, investor or looking to get into the market The Rentvesting Podcast will help cut through the hype, look at the facts and draw on decades of experience to help you make smarter property decisions.
Jun 17, 2017
In this week's episode, we've got Michael Matusik, property expert! Michael's had almost three decades of experience. We talk property outlook, look at the Brisbane market, and the wider South East Queensland market along with interest rates and where they're headed. Finishing off with how investors can protect themselves from spruikers, with a special treat at the end.
If you were to talk about an outlook, imagine the property clock. 12pm is the peak of the market, when things are really hot and property is selling fast, time on market is low. Then 6pm is not a good time, at the bottom of the market where things get stuck, 3pm is a downturn where things are slowing down and price falls then finally 9pm is a recovering phase. Brisbane is currently in the recovery phase, it's showing time on market contracting, the driver behind that is interstate investing, but one of the things different to this cycle is the strengths of it, it's not as strong as it once was in the past and that's to do with employment growth, which isn't as high.
We have good affordability, it's better than Sydney and Melbourne but not as good as it once was. There is some constraint on the ability for locals to pay. It should remain in a recovery phase for the next 12 to 18 months maybe a bit longer.
Some of the drivers for the southern investors is the promise they've been told as to what will happen. There has been a past trend where Sydney and Melbourne actually improve and you see how prices of houses and apartments improve in South East Queensland at the same time. This time they're not as strong, but they've been promised this growth. The next thing is affordability as $900k doesn't get you much in Sydney, but in Brisbane, $450k buys you a two bed and two bath townhouse in the Ipswich and Moreton Bay areas. So investors realise they can buy two properties for the price of one and the yields are at 4 - 6% whereas in Sydney they're at about 2%. In many cases, in Brisbane people are looking to purchase for a yield rather than anything else.
A couple of important things, when we look at regional markets - we break South East Queensland in up to 10 to 12 areas. Just like the West in both Sydney and Melbourne - Ipswich will become something like Parramatta. It is merging to be like Parramatta and one of the major drivers behind people investing in Ipswich are jobs - it's likely to create a lot more jobs in the future due to where industrial land is created along with its proximity. It is between Brisbane and the Gold Coast and is a funnel through to Regional QLD with areas that have minimal resources. It's got pretty good road and railway infrastructure too.
There are some issues with traffic but they're not as bad as Sydney or Melbourne. So Ipswich is expected to create a lot of new jobs, which will be local. People living and renting there won't need to commute to Brisbane for work. It's a major growth market in terms of population and land supply, anyone buying there needs to take a longer-term view.
You can buy house and land packages for under $400k, some cases under $300k. Sometimes you can buy quite well for older homes. Some of them might be 50+ years old, and new estates that are certain products can be great value. By that, I mean multigenerational homes where two generations can live on the same property.
A multigenerational home is when homes have the back with its own kitchen and bathroom area, and it might be a four bedroom with two kitchens. That allows the market to have several tenants and on resale that an owner-occupier is likely to buy it as it allows the mother-in-law or adult child to live with them. One in five households in Australia is multigenerational. So buying something like that is a wiser thing to do in those outer lying areas. Developers are starting to deliver this type of product and they show 7-8% yields.
Logan is an opportunity market as well, there's a lot of new land supply and the underlying demand for Logan isn't as strong. Its employment generation opportunities are limited. Investing in Logan you may have a government tenant, if you have the mindset that money is money and you're buying at a certain price point and profile, then this sort of market might have some appeal. There's upside in both markets, probably Logan is more cyclical looking forward and will bounce around. Whether Ipswich will be more steady.
One of the things that is frustrating in Australia is that there isn't one uniform housing policy to do with compromised housing and allowing/encouraging more people to share homes either by that multigenerational model or duplexes.
The reason I emphasise this is because it may change. What you can do in Logan and even the Sunshine Coast, you can't do in Brisbane. The Building code is restrictive.
Right now there are opportunities on the Sunshine Coast - north of the Maroochy River where there's no land supply left.
It is forecasted that people will go back to what they used to do where lots of people live in one house due to wages not going up and cost of living expenses rising. So this is one market, then you've got is larger families and a change in overseas migration mix. You could say there are two types of tenants in this category, and for the multigenerational Australia - these types of homes are undersupplied for the amount of demand. So for investors, there is one where the demand is likely to exceed the supply in 5 - 10 years, which will confirm price growth on these.
I believe that interest rates will rise, we use a yield curve to predict it and at the moment a 0.5% difference between the two is a neutral policy. Go back 20 years you can see where interest rates fell, and at the moment it would indicate that interest rates are likely to rise. This may sound funny as we've just mentioned people having to spend more and retail getting tougher but it's to do with the cost of money and if the US continue to rise and Australia doesn't change, we will get a drop in the dollar and that will cause a spike. So, to keep things in equal we will see interest rates maybe in the next year or two rise.
Something my partner and I have done in the past is that we've always had a mindset that we may have to pay 50% more interest in a 5-year window. If you'repaying 4.5 - 5.5% you need to think you could be paying 6.5 - 7.5% in the future. We 're at the bottom of the cycle with interest rates. So plan ahead.
This is really important. It's about the composition of the pricing rather than the price difference. First Sydney is over inflated, so the differences are huge. So aside from the culture and lifestyle differences, the first thing to look at is rent - I would be hesitant to buy anything that is lower the 4 - 5% yield, but check for yourself. Don't listen to what the agents say, check on Domain or RealEstate. Look at the vacancy rate and what it's done over time.
The rental market is fluid, it can change month to month and just because you got an appraisal two months ago it can change quickly. Traditionally around June/July and at the beginning of the year, there isn't as much to rent. This is to do with student movements and other variables, so then there can be a tightness in the market and the rent return looks good.
SQM Research does a good job and gives you access to a free database over time to see how the stock has changed on the market.
My firm is a small firm and I largely focus on Queensland and some degree Sydney and Melbourne. I give project and development advice. We break Brisbane City Council up into different areas and also have a capital cities outlook report.
One thing to keep in mind is if you're looking at spending money on a property, do your own research!
This report includes our unique twelve benchmark indicators that define the state of supply and demand in each city. There is a clear logic behind our forecasts. In other words, you’ll find everything you need to know to assess those markets and to understand what’s really going on.