Perth’s investor market is bouncing back, with more and more people optimistic about property market conditions, according to experts in the field.
Anecdotal evidence of a resurgence has gelled with Australian Bureau of Statistics (ABS) data which shows nationwide property investor loan commitments have returned to pre-pandemic levels.
The September figure coincided with a five per cent uptick in loans, following a substantial nine per cent rise recorded in August.
Your Property Your Wealth Director and Buyer’s Agent Daniel Walsh said buyer interest was soaring from first-time to seasoned investors, who were looking to take advantage of historically low interest rates and claim property before price hikes.
“Many investors have been watching and waiting to see what happened to property prices during the pandemic and now feel more confident to move forward with their investment plans,” he said.
“Of course, now we can all see that prices have held up extremely well and have even risen in some locations.”
Mr Walsh’s observations were echoed by Space Realty’s Aaron Potter, a licensed real estate agent who specialises in Perth’s northern beaches.
He said at the beginning of the year he noticed Perth’s investor market strengthening and he was pleased to see it had managed to persist throughout COVID-19.
“The data on this is historical so it’s not really showing too strongly in the statistics yet, but the Perth investor market is looking very good,” Mr Potter said.
“Things are really starting to move again, which is helping to increase prices.”
Mr Potter said his agency was experiencing a surge in inquiries and fast sales on apartments in particular, including one and two-bedroom units throughout Belmont, which found themselves quickly under offer.
He said with Perth’s rental vacancy rate at a significant low and COVID-19 assistance from governments, new investors were especially poised to jump into the market.
“Conversely, existing investors were hesitant because of legislation that prevented rent increases due to the pandemic and are still waiting to hear whether the government will definitely end the measures next year,” Mr Potter said.“But with fly-in, fly-out workers and a lot of people returning to WA, there have been many lifestyle purchases from people, particularly in the South West, and a lot of tenants are moving in.
“It helps when FIFO workers are able to fly in to their destinations from places like Bunbury. In some places along the coast, you have people willing to pay roughly $1000 per week, due to the lack of rental stock.
“At the moment, there are plenty of opportunities to take advantage of.”
While Perth’s investor scene is said to be growing, the 2020 Property Investment Professionals of Australia Annual Investor Sentiment Survey found 36 per cent of investors believed Brisbane offered the best prospects over the next year, the fifth year in a row Queensland’s capital has been pegged number one.
The survey also found 41 per cent of investors intended to buy property in a different state to the one they lived in within the next 12 months.
As with most assets, property has felt the effects of the COVID-19 pandemic. Values are dipping into the negative, migration has ground to a halt and at a certain point the banks will be forced to wind back mortgage relief.
All of these factors are headwinds, to be sure. But does that mean you should sell up and leave the market? There’s certainly light at the end of this dark tunnel, but not without some hurt first.
S&P Global Ratings predicts national house prices will sink 10% before turning the corner in mid-2021.
However, research by the Property Investment Professionals of Australia (PIPA) found that prices increased by as much as 100% in the five years after the most recent recessions (see table).
“In fact, looking back over the past nearly 50 years, house prices were higher five years after a recession or downturn each time,” says PIPA chairman Peter Koulizos. “Some locations performed better than others, most likely due to local economic factors after each period.
“However, the research shows that talk of impending property doom has never happened in recent history – and these recessions or downturns lasted multiple years rather than a few months.
“The moral of the story is don’t panic. Property has shown its resilience through economic shocks before and we have no reason to expect it won’t do so again.”
Still, this recession is like none other, so the nature of the post-crisis recovery is uncertain.
The first thing to do is take a step back and breathe. Panic doesn’t lead to clear decision making.
“COVID is a prime example of emotions getting in the way,” says Your Empire founder Chris Gray.
He warns against selling in a down market and crystallising a loss. “In the stockmarket I know people who sold out of their super, but every single economist I know would say don’t sell if the market is falling,” he says.
Gray also notes the costs involved in selling and buying property are there irrespective of the market level.
“If you add up what it costs to sell a property and buy another, at the end of the day it doesn’t make any sense [in a falling market],” he says.
These costs can add up to tens of thousands, and include agent fees, marketing, conveyancing, possibly a mortgage break fee and capital gains tax.
“In a way, that’s the advantage with property over other asset classes. Because it’s so hard and expensive to sell and buy, it dissuades people from making rash decisions,” he says.
It’s equally important to put the current property pain in context. This means pulling out the pad and pen and working out the property’s performance over an extended time horizon.
Sometimes poor growth doesn’t reflect the quality of the investment. Returns could be concentrated over a short time.
“Property returns aren’t necessarily linear, so it’s possible that you could have the best investment property out there but not see growth for five years,” says Stuart Wemyss, financial adviser and director at ProSolution Group. “Most people haven’t worked out average percentage growth over a period of time.”
It’s about identifying what’s driving returns, and whether these returns are dislocated from the market. “If you have, say, a property in Melbourne, which has overall appreciated 10% over 10 years, and my property hasn’t, then I have a problem that needs to be identified,” he says. “If your property has underperformed the market it’s in, something has gone wrong.”
Wemyss cautions against divesting unless you can point to the factors that have driven poor returns. “It could be location, orientation, changes in the area, land value underperformance,” he says. “Nine times out of 10 it’s easy to find the reason why. Unless you can pinpoint the problem, don’t sell.”
Gray agrees that poor performance needs to be historically contextualised. But this should go beyond the home value and cash flow alone to include the borrowing environment.
“It’s misleading to talk only about rents or interest rates – it’s the differential between the two that matters,” says Gray.
He believes the current environment isn’t as bad as it appears at face value. “If you go back to the year 2000, rent could’ve been $500 a week if the house was worth $500,000, so you’d have a classic 5% rental yield,” he says.
“But rates were 7%-8%. So that means you were dropping 2%-3% gross. Today, rental yield is 2%-3% but interest rates are the same or lower. So now you have a net zero or net positive rental yield. So in terms of cash flow this is still one of the best times we’ve ever had.”
In many cases, when you factor in interest rates you now have a net positive yield rather than a net negative yield.
It’s also crucial to prepare for the worst. This means preparation before you invest in the first place. The risks posed by recessions specifically, and market falls generally, can be partially mitigated by careful property selection.
A good way to guard against unforeseen circumstances is to invest in properties that appeal to more than one market. For instance, a property that can serve as a share house for students and also a family home can provide protection against the loss of international students.
Another example is to avoid towns that rely on one industry, such as mining. As we’ve seen with the pandemic, recessions affect different sectors differently. And it’s not just during a recession that sectors can fall on hard times.
“I bought in Blackwater, a mining town,” recounts Lloyd Edge from Aus Property Professionals. “It had 23% growth at the time so I thought I was onto a winner, but then in 2012 the mining boom ended and rents and values dived. It reinforced the need to avoid buying in locations supported by a single industry.”
Likewise, one can easily be distracted by shiny things. Sometimes if it seems too good to be true, it?is.
“A lot of people see things like Airbnb, see a 10%?rental yield, and think things will be rosy,” says Gray. “But then it turns to winter or COVID and it all comes undone.”
In this case, it’s better to have steady, dependable rental yield rather than a potentially higher but volatile yield.
Any good plan starts with a strategy, which should?be top-down, with individual properties defined by the overarching goals, rather than the other way around.
“Start with a strategy with a set of goals, and work backwards,” says Edge. “Investing in cash flow properties serves a different goal to investing in properties with capital growth potential. Cash flow properties can look attractive in the short term, but without capital growth you’re not going to increase your wealth.”
Gray goes a step further. “No matter what the pain is, even if it’s a few hundred thousand dollars, if the property is performing well in terms of capital growth, then weathering the pain is worthwhile.”
However, Edge points out that finance will be easier to manage if your portfolio has properties with a healthy cash flow.
“You shouldn’t just buy all your properties in, say, Sydney or Melbourne,” he says. “It’s better to balance the capital growth you get from the city centres with the cash flow found in regional centres.”
But though it’s a good idea to hold onto an investment property through the hard times, you shouldn’t “set and forget”. Successful property investing is a hands-on process, now more than ever.
Our national obsession with real estate prices and investment properties has long been defined by the state of the markets in our two biggest cities – Sydney and Melbourne. These are the powerhouses behind a long-term property boom that has only slightly come off the boil.
But that duopoly is being challenged. Property Investment Professionals of Australia’s 2020 Annual Investor Sentiment Survey found that investors are turning to the regions as places to both invest and live in, partly driven by the game changer that is the coronavirus.
The national survey, conducted online in August and reflecting the views of about 1,100 property investors, shows that investors are still confident about the future, with 67% believing now is a good time to invest in residential property, though this has dropped from 82% in 2019.
“While there is no doubt that 2020 has been one of the toughest in living memory for everyone around the globe, property investors have remained resilient in the face of the unprecedented uncertainty we are all experiencing,” says PIPA chairman Peter Koulizos. “The property market has continued to show its resilience, with prices materially stable in most parts of the nation.”
The survey reveals that 77% of investors say concerns about potential falling house prices won’t make them put their investment plans on hold, and 44% are looking to buy a property in the next six to 12 months.
Just where investors want to purchase properties could prove a welcome and transformational change for regional Australia. The survey shows that more than 40% of investors intend to buy property in a different state or territory to the one they live in. The regions are set to reap the benefits of an influx of new residents, with investors saying they want migrate to regional NSW (21%), regional Queensland (18%), Brisbane (16%) and regional Victoria (14%).
“We can identify 12 regional locations across Australia that are booming right now” Simon Pressley, head of research, Propertyology
Queensland offers the best investment prospects, favoured by 36% of investors, followed by Victoria (27%) and NSW (21%).
The survey reveals the main reasons for moving to the regions are improved lifestyle (78%), working from home (46%) and housing affordability (40%). The appeal of metropolitan markets has fallen from 73% last year to 61% this year.
Koulizos says interstate investments have been growing in popularity in recent years as investors have become more strategically astute.
“Investors are recognising the value of working with property investment professionals to help them score the best opportunities across the nation,” he says.
Ben Plohl is a member of PIPA and the principal buyer’s agent at Sydney-based BFP Property Buyers. He advises homebuyers and investors who are buying property all over Australia.
He says interest in the regional property markets was growing even before the COVID-19 pandemic hit.
“Sydney and Melbourne have always dominated the media headlines from a property perspective. Even pre-COVID the regions definitely gained momentum in terms of people wanting to escape the city and relocate from a homebuying perspective,” Plohl says.
“But also from an investor’s perspective, I’ve always been bullish on the regional markets. I think since COVID, that’s been more prevalent.
“Obviously we are very select about where we buy in regional Australia, but there are some gems out there.”
Plohl says regional Victoria and NSW are definitely standout areas for his clients. He highlights Bendigo, Mildura, Albury-Wodonga, Orange and the Central Coast.
Greater affordability and better yields and lifestyle are major attractions of regional cities, as well as job opportunities, population growth and robust economies.
Plohl say there’s also the principle of supply and demand: “The regions I am looking at have land-locked areas or locations that have very little developable land, and there’s a real desirability with these places which is driving up demand.”
Working from home is also playing a big part in the regional trend.
“People are looking at themselves and saying, ‘Do I need to live in the centre of Sydney? I don’t need to commute to the office any more’. I’ve got clients wanting to go to the Central Coast – a much cheaper alternative with lifestyle amenities, beaches, fresh air.”
Plohl gives an example: following a client’s purchase of a Central Coast property, it was put up for lease and within 12 hours there were 12 clients wanting to lease it sight unseen.
“I’ve studied property cycles and economics for many years … what we’re going through and what was announced in the federal budget is just another tick in the box for what happens when property markets are about to enter a significant uptrend,” Plohl says.
Queensland-based buyer’s agent and property analyst Simon Pressley, head of research at Propertyology, says that for the first time in 20 years Australia is experiencing a truly national property boom.
Pressley has identified 12 booming regional areas: Orange, Launceston, Burnie, Coffs Harbour, Noosa (“the hottest market in Australia right now”), Mildura, Bendigo, Karratha, Moranbah, Emerald, Whyalla and Mount Gambier.
“Never have we have had such a widespread boom since the Howard/Costello years from 2001 to 2003. We are at double-digit price growth pace right now,” he says.
Pressley believes the regional property boom would have happened without COVID-19.
“People wanting to work from home and get out of the big cities has been an extra driver.”
Pressley says that while COVID has “put the pause button” on the property market, the effect has been minimal given the all-time low interest rates and the fact that “85% of the population” have not been adversely affected by the pandemic.
“We’ve definitely seen an increase in those looking to leave Sydney and head our way” Simon Kersten, managing director, Colliers International Wollongong
He says the “doomsday scenario” of a plunging property market did not occur because property is an essential commodity and its scarcity has put upward pressure on prices.
Colliers International Wollongong managing director Simon Kersten, whose company focuses on project developments and apartments, says there is strong demand from owner-occupiers and first home buyers looking to relocate to the Illawarra.
“We’ve definitely seen an increase in those looking to leave Sydney and head our way,” Kersten says.
“It appears the South Coast is having an even stronger influx.”
Due to COVID-19, many people don’t need to commute, and this has accelerated interest in buying property in Wollongong, he says.
“The population of Wollongong CBD has doubled in the last five years, and there’s enough apartments coming to see that trend continue.”
Fear of living in a big city during COVID is also a big factor, Kersten says.
Demographer Bernard Salt has coined a new name for the group of people driven by this fear, dubbing them VESPAS, or Virus Escapees Seeking Provincial Australia.
Salt says it’s no longer just retirees; it’s younger people too – drawn to the regions by their safety and security, housing affordability, access to the NBN, and even the drought-busting rain that’s bringing the parched countryside back to life.
To capitalise on the trend, Kersten says businesses need to offer flexible working arrangements, such as office space for their regional employees.
Wollongong City Council is currently lobbying state and federal government departments to relocate to Wollongong.
In this episode of The Smart Property Investment Show, host Phil Tarrant gets an exclusive Property Development 101 masterclass from South Australia’s “Property Professor” himself, Peter Koulizos, a Master of Property instructor at the University of Adelaide and the chairman of the Property Investment Professionals of Australia.
Mr. Koulizos describes the 10 steps to a successful property development in great detail, from determining goals, conducting feasibility studies, and crafting contracts to crunching the numbers, understanding taxes and finding the right professionals to work with.
He also shares his insights on the future of the Australian property market, and why he believes that every property owner and investor should be excited about March 2021. (Hint: MASSIVE growth)
So we learned today, via our media monitoring, that there is a pigeon auction house in Europe called PIPA, too!!! The pigeon’s sale price was equivalent to a “high flying” property price mind you
Pigeon New Kim has shattered all records for racing pigeon sales.
The two-year-old female pigeon achieved a record price of 1.6 million euros ($2.6 million), according to pigeon racing auction house PIPA.
The Belgian-bred bird sold to a Chinese bidder after a mad finish to the two-week auction this week.
A bidding war between two Chinese enthusiasts saw the price of the auction soar past the previous record of 1.25 million euros.
According to reports, the new owner of the world’s most expensive pigeon also previously held the record after male pigeon Armando sold for $2 million in 2019.
But the Chinese individual clearly saw something special in New Kim and was prepared to shell out the record price.
The New York Times reports the same person also purchased one of New Kim’s hatchlings for $970,000.
The report claims the new owner could bread any potential offspring of Armando and New Kim for more than $320,000.
Nikolaas Gyselbrecht, the founder the Pigeon Paradise centre in Belgium and auction house PIPA, said there is evidence to suggest the record price may be a wise investment.
Gyselbrecht said the pigeon: “Performed as the best bird in Belgium in 2018
“You could compare it to a Picasso painting. It will sell more than a local American artist.”
New Kim was also one of the last pigeons raised by breeder Gaston Van de Wouwer — a successful breeder who has since retired.
AP news wire reports the auction of Van de Wouwer’s 445 pigeon estate had already reached sales of $9.8 million with days still left in the auction.
The record sales to Chinese investors reflects the shifting focus of the pigeon racing world with the auction house estimating Chinese buyers now make up around 50 per cent of the $68 million in annual sales through the PIPA auction house.
