As we try to make sense of the mixed messages about the property market, it is important to find the right guide to work out where to invest and which properties are the best.
Here’s a transcript of the interview:
(Alternatively you can listen to the short podcast at the top)
Kevin: I’m fascinated to hear different views about where our property markets are headed.
How do we make sense – or how do you make sense of all of these mixed messages?
Michael: The first way is to have a system so that you’re not getting sidetracked by all the news.
But the next thing is to start with a macro approach of how the world’s going, then look at how Australia’s economy is performing and then dig down to a micro approach of how various segments of the property markets are performing and then look at particular properties.
Kevin: Walk us through that, I want to dig a bit more into this to see how you actually determine that.
We start with the big picture of how is the world economy performing and how is Australia’s economy going?
Because there are some stages of the property cycle and the world economic cycle that you may just sit on your hands and do nothing.
Sometimes the right thing to do is nothing, but I don’t think 2016 is that year.
So we look at how is the economy going
In Australia, we’re not going to do the best, but we’re still going to be the envy of most of the developed nations.
Then we look at the states.
We dig down to the right state and see one that is in the right state of its own property cycle.
As we know, each state has its own property cycle.
I don’t try to time the cycle , but I don’t buy right near the peak where you’re probably going to miss out on capital growth for a couple of years.
Kevin: Let’s look at the current state of the markets or the current state of the states.
Are there any states that stand out?
Obviously, there are the ones where you probably wouldn’t go – and maybe that’s Perth and Darwin.
Michael: The property cycle is going to be driven by wages growth and economic growth.
We know that in Sydney and Melbourne, the markets have been very strong, but over the long term, the way that property values can increase is by people being able to afford to pay more.
That’s partly because of lower interest rates, and it’s also happening in certain segments where jobs are being created and wages are going up.
Those areas where service industries, in particular, are creating jobs in certain segments of our big capital cities.
It’s very likely going to be Melbourne and Sydney this year, with Brisbane performing well this year also.
Then within that state look for the right locations.
Don’t just look for suburbs that have had a long past history of capital growth; it’s just as important to find suburbs where the demographics, the people, are able to afford and are prepared to pay a premium to live there.
That is going to occur more close to the water, close to the CBD, close to where the economic activity is, so we then drill down to finding these suburbs.
The Australian Bureau of Statistics provides suburb-by-suburb data from the census on disposable income and areas where disposable income increases more than average.
Then you really need “on the ground” information because in every suburb there are three or four districts, some locations are better than others in every suburb,
I’m not just talking about on main roads or close to shops, or schools, or commercial areas, but also why some streets slightly have more character, why one side of the street is worth more than others.
Then dig into the right property.
That’s my five-stranded approach.
Then, it’s the price.
It’s going to be important to get price right this year.
You can’t overpay in a market that’s not growing very much like it did in the previous couple of years.
Inflation and high price growth isn’t going to cover up mistakes in 2016.
Kevin: Thank you Michael.
Michael: My pleasure Kevin.
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