Hello! It’s John here and this video is going to tell you a little bit about shooting star housing markets. They blaze brightly for a year or two and then they disappear from view altogether. And at the moment, Sydney star is pretty bright, there has been a lot of price growth with all the attention focused on Sydney and people wondering why it hasn’t occurred in other capital cities to that extent. When you look back at the history of the housing markets, from 2002 onwards, what we discovered there is that every capital city has had a turn as being the leading city. That is the growth generator in each year, it’s been different. (Read More…)
Hi it’s John here, and I would like to tell you a little bit about why virtually all of the property forecasting methods that the investors rely on are wrong – and it is because they are looking in the wrong direction. (Read More…)
Hello it’s John here with this tale of 2 visionaries. One was right, and one was wrong. One was listened to and one was ignored. And the consequences were disastrous for the people involved.
Now the first one was Henry Hellyer and he was a surveyor who came out from England and surveyed the north-west of Tasmania in the early 1800’s. He came to the conclusion that the land was imminently suitable for farming. A lot of immigrants came out from England and started farming in the north west of Tasmania. The problem was that he had completely misread the climate and the land. It was unsuitable for farming, bitterly cold, snowing and blizzards for much of the year. He’d just arrived luckily at a time when that wasn’t happening. The settlers who arrived there and set up their villages and towns lost everything. The outcome of that was that Henry Hellyer himself committed suicide as a result of what had occurred.
Now the other visionary was George Goyder. He surveyed much of the north of South Australia in the mid to late 1800’s. He saw that the land was not suitable for farming and he advised the government not to allow for farmers to move into the area. But after a number of years of really high rainfall, the government ignored his advice and allowed farmers to move north of the line he called Goyder’s Line which meant that was an area where the rainfall meant that it was not an area suitable for farming. So the good rainfall meant that the farms prospered, towns were settled and then of course the rain stopped and the area turned back to desert and the towns were abandoned.
So Goyder was right, but people lost everything because they didn’t listen to him. And in the case of Hellyer, he was wrong but people lost everything because they did listen. So what does this mean for property investors? Well it means that you’ve got to look very closely at the claims you hear about the benefits of a certain area for investment. Look very closely at the claims – are they valid? Look at the track record of the people making the claims to make sure that they’ve got a good track record. Look at the evidence they produce to substantiate their claims, is it real, hard evidence? Don’t be mislead by emotional appeals – always look at the facts and that way you’ll be sure to avoid the sorts of mistakes that the people who followed Hellyer and who didn’t listen to Goyder fell into.
Hello this is John with the story about the caterpillar and the butterfly. One of my children’s favorite stories was always ‘The Very Hungry Caterpillar’. It’s a story of how the caterpillar ate and ate and ate, consuming everything and then eventually it made a cocoon and then of course turned into a beautiful butterfly. There’s always gasps of amazement no matter how many times they’d heard the story when that happened and the beautiful butterfly emerged.
It occurred to me that the housing market is a bit like that as well. There are many, many suburbs and towns around Australia which are like hungry caterpillars. Prices are falling, they’re eating up investors’ funds, rental yields are low and there’s large rental vacancy rates. But sometimes these markets can change, and they can change within a few years into beautiful butterflies. What you need to look for when you’re looking at these sorts of areas, are areas where prices have been falling or demand has been low but where something is changing; the dynamics are changing. It could be that there’s an increase in overseas tourism. It could be the number of retirees moving into the area is rising or it could just be a new holiday-maker place that people are moving to. This creates work for people and of course as work is created more people move in and so the demand for housing rises and of course with retirees moving in, you find that price growth occurs as well. Then when people least expect it, suddenly this housing market which was a very hungry caterpillar consuming investors’ money suddenly turns into a beautiful butterfly with high price growth and soaring yields. So look for those changes in markets and when they occur you may well have found your own beautiful butterfly.
The Greek tragedy that is unfolding in Europe is unlikely to have any lasting economic or financial damage to Australia. But it could have an unexpected effect on our housing markets, and that’s due largely to the fact that when economic condition deteriorate, jobs dry up, salaries are cut and so on. What do people do? Well they leave.
Australia’s housing market has largely been based on arrival of people from overseas countries under such circumstances in the past. Now for example, after the First World War we first of all had a huge influx of soldiers arriving back from the war and they started families, and housing prices started rising. The same thing happened after the end of the Second World War. There was a huge lift in house prices as the soldiers returned and wanted to start families. They were assisted by Wart Service home loans… in fact housing prices double in just 2 years after the end of the Second World War. Then suddenly, the price growth stopped and this was because a large number of people were now arriving from other countries from war-torn Europe. These people had to rent as they couldn’t afford to buy, so what happened then was that rent started escalating dramatically and prices stopped going up. That continued for a number of years until those people could afford to buy their own homes.
This is what we may be seeing again with the arrival of a large number of Greeks coming as they escape the turmoils in their country. What impact that is likely to have on the Australian housing market depends on where these people go. I think in the main they will be young, educated, cosmopolitan Greeks who will seek an urban lifestyle – new well-appointed units which they will rent for a while, probably close to the CBD. So in Sydney & Melbourne, you’ll likely see an increase in rental demand from the very areas that are most at risk of suffering rent surpluses right now. So this is excellent news for our housing market, and it’s of course great for the young people who are coming here from Greece who are starting their new life as well.
That’s the impact, as I see it, that could happen. It’s a great one for housing markets that are currently at risk. Until next time, ‘bye’ from John.
A lot of experts have recently been talking and there’s been a lot of media commentary about whether Sydney’s housing market has turned from a boom into a bubble. So I thought it’d be great to have a look at what’s actually happened to the Sydney housing market – not just recently, but over quite a few years going back to last boom. The last boom was in 2002-03. During that time, Sydney’s house price went up by 40%, so that’s 40% in 2 years. But all the other capital cities went up in price as well, and some went up quite a lot more than Sydney. And since then, what happened since 2003, Sydney’s housing market has doubled in price, but in the intervening years, there were some years it went backwards, and by 2006, it had fallen by 10%. It didn’t get back to where it was after the boom until 2009! But the other capital cities kept on growing in price. So that meant that Sydney had fallen behind. It’s 100% price growth was not equal to Melbourne and Brisbane which went up by 150% over that time, or Perth and Hobart which went up by 200% over the same time. So you see that Sydney needed to catch up. Not good news for first home buyers, but perhaps the best time to buy a property as a first homebuyer was during that time. Because now Sydney is catching up, and the high growth we’re seeing at the moment is caused by this process. However, talk of a bubble doesn’t help us at all to understand what’s going on.
The problem with talking like that is we’re looking at the Sydney housing market as if it’s one market, and it’s not! It’s actually a first home-buyer market, upgraded markets, retiree markets… [plus] in the renter areas there’s new households and there’s overseas arrivals and there’s permanent renters. So there’s lots of different type of markets and they all behave differently.
If we look at the growth in Sydney’s population, what we see is that Sydney’s population goes up by about 75,000 people every year. That equates to around 33,000 new households. But the rate of new dwelling approvals at the moment is running at 35,000 a year in Sydney. So you can see that we’ve got slightly more new units and houses and apartments coming into the market, than what are required. That’s about 2,000 surplus. That’s nothing. Next year if the rate of approvals drops, that could turn into a shortage. The problem is, that even though the numbers are about equal and our market should be in equilibrium. it’s because the developers are building most of these new dwellings in inner-urban areas, they’re building high density and medium density units and they’re building them mainly for the investor market. So these units are being built for renters, ultimately, to live in.
Yet 75% of the new households in Sydney are owner-occupiers – where people want to live in the homes that they buy and are paying off. They don’t want to live in inner-urban areas – they want to live in more established outer-urban areas and new suburbs. So it’s total dysfunction in terms of where the market is, where the supply is and where the demand is. It’s completely out of kilter.
What we’re seeing is emerging over-supplies of rental properties in inner-urban areas, and then huge shortages of owner-occupier properties occurring in outer-suburban areas. So prices are likely to keep rising – there is no bubble in the Sydney housing market as such. And nor, is there likely to be in the foreseeable future. So house prices will keep going up in middle to outer-suburban areas. But where you’ve got a bubble potential problem is in the inner-urban unit markets. And that’s where the rate of building these units is greater than the demand for rent for them. So that means rent could fall, and then investors get panicked and start to sell these off and so prices could fall in a few years time. But the main thing is, avoid these areas and there won’t be any issues because the investor market in Sydney is strong as long as you stay out of these inner urban unit markets.
Now I’ll be sharing more of my insights at Stuart Zadel’s forthcoming Ultimate Property Investor Conference. If you’d like to see more of these, I’ll invite you to come along. I look forward to seeing you at one of these presentations, and until then, it’s bye for now from John.
Relying on long-term past performance. This is again a very common mistake that many investors will do. They look at the past performance of a particular housing market or suburb and they can see that it’s had high growth for a long period of time. The natural inclination is for you, if you’re looking at such history, to think well it’s likely to continue. However, when you look at the suburbs that I’m showing in this graph that I’ve prepared, what you see is that Gladstone increased by an average of annual growth of 20% each year in the last 10 years – one of the best long-term past performers. In the last five years, this is up until 2012, the price change is 80%. The other suburbs and towns that I’ve charted here Moranbah, Newman and Port Hedland, all of them have very high annual growth over 10 years up to 2012 and they had very, very high price growth in the five years leading up to 2012. In other words, they have very, very high long-term past performance.
What do you think happened in 2013 and 2014? Had you bought a property in one of those towns, what would have happened to your investment? Well this chart shows you. Over the next two years, Gladstone’s median house price fell first in one year by 19% and the year after by 34%. Moranbah fell by 33% and the year after by 48%. Newman by 44% and 1%. For Hedland, went up slightly on the first year and then fell by 13% in the second. So the average price fall for those four towns in the first year in 2013 was 23% and another 24% the year after, that was last year 2014 – a total price fall on average of 50%. No investor can withstand losses like that and the reason those losses occurred is because the past performance didn’t indicate what the future performance was going to be at all – conditions had changed. So don’t rely on long-term past performance because it’s going to be very misleading and will lead you possibly into making investments in the worst possible areas.
Relying on old, outdated or incorrect information. Now you’ve probably seen advertisements in magazines online where you get a free report about a certain investment area. You might even get a free report that says “Here are the top 5 suburbs chosen by experts”. This sort of thing. You’ll get this sort of information and it’s free.
Now it’s not really free of course because there’s a reason why people providing this sort of information but the important thing you should look at is whether it’s free or not doesn’t really matter. It could be very, very good information. What’s important is who put this together. How recent was it put together? Have a look at the date when the information was provided and where did it come from. What sources were used? If somebody is claiming that a certain area is about to boom in price in the free report you’ve got, have a look and see how they’ve come to those conclusions. What evidence did they used? and then look to see how recent that data is as well. Quite often you’ll find the information is years old and it’s being reported as recent information so it may not be current and it may not actually be accurate at all. This can actually be wrong data, used the data in a way that gives you the wrong impression of something.
Have a very, very careful look at those reports and be very wary of making any decision based on them unless you’re sure where the information has come from, how accurate it is, and recent it is.
Buying the wrong property in the right suburb. Let’s assume that you’ve found the perfect investment suburb, and you’ve decided whether to buy a house or a unit. It then becomes a matter of buying the right house or the right unit. When you look at the typical house or unit in that area that should be your guide. In other words, the most popular type of residence, be it a house or a unit, is likely to be the one that is going to be most popular. What you look for is properties that are around the medium price for that suburb, be that houses or units. Some might be three-bedroom houses, two-bedroom units. Then you look for the type of property that’s going to suit the occupants that is, the people you’re going to rent it to. Rent demand is very important in making sure you get the cash flowing. So what you’re looking for is the type or property where renters are more likely to want to live. Of course don’t forget the fact you’re going to be selling it in a few years’ time and therefore you’ll also need to purchase a property which is going to be attractive to a prospective buyer in a few years’ time.
Let’s say you’re thinking about doing renovation, well then you might buy cheap property and renovate it to that highest demand type of household so you’re renovating to the demand and not from it. You’re buying to the demand and you’re finding a property with the highest possible rent demand. Don’t buy an atypical property that is one that looks very, very different to most properties in the suburb because it will probably perform differently as well.
Being afraid you’ll miss out – you’ve probably seen advertisements in the paper and online for unbelievable property investment opportunities and quite often they’re couched in terms of ‘Be quick of you’ll miss out, these are selling like hot cakes’ and so on. The worst mistake you can make is to jump in and buy one, without doing your own research.
Now a classic example of this is something that happened in the 1970’s in Queensland. There was a huge property development that was done on Russell Island which is an island in Moreton Bay, it’s about 40km from Brisbane and it is accessible by ferry but not by bridge. So the developers got the Queensland Government (who knows how) to make vague undertakings that they would build a bridge eventually. And because Russell Island wasn’t under the jurisdiction of any local government authority, they also convinced the government there to rezone the whole island as residential despite the fact that it didn’t have roads, or water services or electricity or anything. Now there was 1 problem with this development and that was that the whole island went underwater at high tide.
To solve this problem, the developers came up with an innovative approach – they did all the aerial photography at low tide. So that what you saw if you looked in the newspaper you’d see a beautiful island investment opportunity too good to be true. 20,000 lots went for sale and investors in Sydney, Melbourne and other cities bought properties without actually going to have a look. Now if they had gone and had a look they would have discovered that they wouldn’t have needed to go and buy swimming pools because their properties would possibly be under water at high tide. How can you resolve a problem like that? Well don’t jump in because the developers and the marketers will always put the best possible gloss on their developments.
So you need to look behind the advertising and see what’s actually being offered. Do a bit of research – and had you gone and had a look at your prospective property on Russell Island you might have seen that you’d be sharing it with mud crabs and so you wouldn’t be buying. So that’s the secret to this – don’t jump in and don’t be scared of missing out because it’s better than buying a bad property investment.