I have to be honest, it’s a strange time in the East Coast property markets.
The truth is… thinking about buying property right now feels a bit interesting…
2019 is probably the MOST CONFUSING time in Australian property for uneducated buyers in years.
The media has been totally crazy, calling boom then doom then gloom, debt bombs, affordability crises, smashed avo-gate, fomo, fobo and a hundred other scandals.
The Royal Commission has had lenders running scared. Every economist who wants a front page article is making up predictions.Then, in more recent months we have seen the RBA back pedalling, the Govt removing investor lending restrictions AND interest only restrictions. The handbrake is actually off now. But the election is still coming, and that is making people feel uncertain all over again.
I wouldn’t blame you feeling confused, I have had people calling me unsure what to do all month, many want to buy are are unsure if it’s the right time.
Some buyers are playing the guessing game, and some are sitting on their hands waiting for someone to ring a bell at the bottom of the market. (HINT: Nobody rings a bell at the bottom of the market)
In fact… some savvy developers in key locations (not Sydney or Melbourne, I am talking about growth coastal markets) have already decided the bottom has happened and are out in force buying again. I personally know some agents who have sold 10 properties in the last fortnight and they are busy calling a recovery.
SO… WHAT SHOULD WE MAKE OF THIS?
Some clients are asking about “the market” lately. We buy in lots of markets so we always try and provide an answer that starts with “it depends”…
A snapshot of the areas we have been buying lately in the interest of honest disclosure.
Postcode 1: This postcode is > UP 2.3% < for the year to January 2019. Recently purchased (and still looking) Positive cash flow units (example recent deal $286k purchase, rented for $400pw or 7.2% gross rental yield)
Postcode 2: This postcode is > DOWN 6.7% < for the year but sales speeds have already picked up in January and stock on market recently started falling. Major Infrastructure projects mean 3-5 year outlook is above average for growth. Good value houses between $300-500k. Recently purchased (and still purchasing) Dual Occupancy Potential sites turning 1 home into 2 and small/medium development sites. Development margins ranging from 10% to 20%. Homes suitable for Granny Flat additions for long term 6-8% cash flow rental returns.
Postcode 3: This postcode is > UP 8% < for the year to January 2019. Recently purchased waterfront beach homes.
Postcode 4: This postcode is > UP 3.4% < for the year to January 2019 - recently purchased (and still actively purchasing) dual occupancy development sites turning 1 home into 2 for 10-15% equity profits and granny flat sites. Entry prices sub $500k if willing to renovate the existing home.
Postcode 5: This postcode is > DOWN 0.4% < and has a major infrastructure project about to start. It represents good value for renovators and those wanting larger blocks of land close to beach.
As you can see the “bloodbath” and price falls widely publicised in some Sydney suburbs are not equally translating to all markets. On the plus side, a softer market means we can DO OUR JOB. For us going to work for our clients we love adding the value. The more the better… but I digress.
LET’S STOP AND THINK ABOUT WHAT WE KNOW:
There are a few very fundamental factors to consider (you can be sure these won’t get covered in the media because they are boring and boring doesn’t sell newspapers)
FACT: The nations two most expensive cities are still pulling back from a very high peak (this was always expected and predicted after a boom), and they have more pain to come in coming months. The media behave like Sydney and Melbourne are the only two real estate markets in the country - meaning you would be forgiven for forgetting about all the other options out there.
FACT: Next week, next month, next year, next decade every single Australian will still need a house to live in and protect us from the sun, rain, heat and cold.
FACT: The cost of living and the cost of building houses is continuing to rise at approximately 2-3% each year.
FACT: Our population grew by approximately 390,000 last year.
FACT: Unemployment is falling – at 5% it is now the lowest it has been since 2011.
FACT: As the globe becomes more mobile Australia is ranked one of the highest demand places to live (on the entire planet) so demand for immigration continues.
FACT: The Royal Commission report has basically said our banking system is stable and NOT about to implode, telling the banks to carry on.
FACT: Government restrictions on investment lending have been lifted signalling a green light for lenders.
FACT: East Coast property markets outside of Sydney and Melbourne are remarkably stable and some areas are growing. Plenty offer fair prices and solid rent returns.
FACT: It is still possible to buy a home on it’s own block of land for $600k, $500k, $400k, even $300k in some areas not as remote as you would think.
FACT: Specific regions of NSW have record infrastructure spending going on right now. Infrastructure spending in the billions of dollars which will impact property markets.
Not all home in all markets will perform equally. You need to research thoroughly, buy well and make your own profits to ensure success.
SO WHAT TO DO NOW THEN?
Step 1: BE HONEST... Feel the fear. Admit it. Denial is useless.
Step 2: REFLECT... What is the reality behind the headlines?
Step 3: ASK... Where are the opportunities in this situation? What are my goals?
Step 4: CHOOSE... Ok then...what do I want to do now?
OPTION A: Continue waiting and watching. The truth is there is still uncertainty in the media and economy so perhaps this makes sense?
OPTION B: Do Something. Take action.
REMEMBER: Warren Buffet says: “Be fearful when others are greedy, and greedy when others are fearful”
He didn’t build Berkshire Hathaway into one of the worlds richest companies by sitting on the sidelines in the scary times.
IF you can think like the world's greatest investor (and that is a BIG IF) then now might be the time to BE AGGRESSIVE (“really? did Matt just suggest that?” - ok well if you are shaking your head then you might be right, I might be a lunatic but just take your time and think about this, you don’t have to rush out and buy the whole market but at least check out the 3 case studies below…)
WHAT WE HAVE BEEN UP TO:
The truth is amidst all the crazy vibes we have been like PIGS IN MUD lately on behalf of our buyer clients.
We have slashed the purchase price of our last few client's properties more than ever before. The reduction is often between 7%-13% and occasionally more.
Here are some recent case studies to show you just how much of a savings clients have been getting:
CASE STUDY 1: Unit Advertised for $315k (fairly priced to sell fast and comparable sales in that exact range) - we haggled hard and purchased for $286k - a discount of approximately 10% - but we also knew the current rent was too low, so we worked with the client to do 1 very minor repair in the unit then we worked with the property manager and this unit is now rented at $400pw, a gross yield of 7.2% and positive cash flow.
CASE STUDY 2: A house advertised for $420k but finally dropped to a very fair $400k in a street with the 2 most recent comparable sales being $405k and $430k. We knew the vendor was very motivated having already purchased elsewhere and moved house so we purchased for $370k (an 8% discount to fair market value).
CASE STUDY 3: A unique double income property with development potential - and being a deceased estate we were working with extended family members on the sale. An initial advertised price of $750k fell into the $600’s during the marketing campaign. The property was withdrawn from the market and was about to be handed back to the banks when the agent called me to see if we could have one last attempt at saving the property from the mortgagee in possession process as the family would be better off if they could avoid this.
The property had some repair issues so we negotiated a sale at $570k, a 24% discount from original asking price, and conservatively 13% or more from mid $600’s which was very fair market value.
The property will rent for $600pw minimum or 5.5% and has massive development potential. The clients are quietly confident that in time they will realise the $100-180k equity gain they secured at purchase along with further ongoing profits when the market improves.
So, as you an see we are having a LOT of fun delivering results for our clients at present. It is great to be able to add so much value during the buying process. The market is ripe for savvy buyers to make tomorrow's profits today. The current market opportunities simply will not last forever. 100 years of property cycle data has proven this true time and time again.
HOWEVER there are still numerous headwinds in the national financial system, the election is still coming and sentiment is still down.
So think carefully before you decide on your own course of action.