Tag: Property Investing

My 2022 Hot Tips

Posted on by admin

While the provocative title of this blog may have some readers intrigued, I want to put your mind at ease. My hairstyle isn’t changing. I won’t be peroxiding my crewcut in some vain attempt to start an 80s synth cover band.

No… the tips I want to show you relate to the property market, so apologies if you’re hoping to glimpse me dressed as the singer from A Flock of Seagulls.

Instead, I’d like to jump aboard the prediction train and share a few thoughts on what I believe will play out in 2022’s property markets.

While I have the utmost respect for most qualified commentators, there is something of a new perspective I can bring to this chat. I spend plenty of time interviewing and discusses property investment with a range of others in the field such as buyers’ agents, investment advisors and valuers. By combining their collective musings with my own analysis, I’ve come up with a few opinions about the coming 12-months I believe are worthy of consideration.

 

The big picture

While 2021 was a standout year for anyone who owned a home and was looking to sell or refinance, the sorts of growth rates we’ve seen in the past 12 months are, simply, unsustainable.

That’s why, toward the tail end of 2021, activity and prices tapered in our two biggest markets – Sydney and Melbourne. Given the sheer volume of transactions these two metropolises contribute to the analysis, there’s little chance Australia’s overall property value growth metrics will persist.

I believe many owners who held off selling last year will now list their property before the market softens further.

Don’t get me wrong – value growth will continue, but the rate of growth will trend lower on a monthly basis.

Of course, some locations will still do well. Brisbane seems to be the great beacon of gains heading into 2022. It’s lifestyle appeal, planned and current infrastructure projects, and future Olympic Games have placed it firmly in the crosshairs of investors. Brisbane also remains relatively affordable compared to the southern capitals, so it’s the pick location for me this year.

 

Worth tracking

As mentioned above, I believe listings will be a must-watch metric this year.

Most of the market strength in late 2020 and throughout 2021 was a response to the lack of available listings. As listings rise this year, there will be more choice for buyers and prices can be expected to attenuate in response.

The next thing to keep track of is the finance sphere. Not to flex my multi-syllabic vocabulary too much, but macroprudential policies will be a key piece in the puzzle. APRA, the RBA and major lenders will implement changes this year in response to rising inflation, and a lack of housing affordability. I suspect investors will be punished via tougher lending criteria and higher interest rates. So, stay up to date with your financial arrangements and be ready to strike if an opportunity presents.

When it comes to choosing the right asset, the consensus is to act with care in 2022. During booms like last year’s, gains seemed inevitable no matter what you bought. This year, however, fundamentals will be key.

For starters, houses will outperform units in terms of capital gains and rental growth. Homes, or more specifically their land component, are finite and unique. If you can buy a house in your choice market, then that would be the way to go.

This leads me to issue a warning on ‘secondary stock’. Anyone who bought late last year in an attempt to speculate on a property that didn’t have great fundamentals – e.g. inner-city investor units – could be in strife. If you’ve purchased believing the markets will continue rising in value like a newly launched crypto currency, you could be in for some hurt. As markets soften, expect these secondary-quality properties to be the first impacted by the downturn.

I say that knowing we’re about to see the return of overseas students and skilled workers who traditionally prop up these sorts of markets. But even with those arrivals, I’d be very cautious about taking a tilt at property by buying seemingly ‘cheap’ investor stock. There’s more downside risk over the next 12-months, and beyond, for this type of housing.

Also, commercial property will grow further in appeal. This might surprise anyone who noticed how the pandemic decimated the business sector. But rather than destroying all operations, COVID seems to have filtered out the pack. It’s helped identify the types of tenants and buildings that are most adaptive, flexible and tenacious. As a result, good commercial assets with strong tenancies are in hot demand. They’re providing attractive yields in a low interest rate environment, so what’s not to love about that?

 

In a nutshell, expect 2022 be a little more subdued, especially in our bigger markets. My fervent hope is that the pandemic buggers off and we can get back to the usual state of affairs. As we wait for this to happen, take a more conservative approach when investing in 2022 to ensure your long-term plans stay on track.

First homebuyers success in this hot market

Posted on by admin

A parent’s drive to protect and nurture their offspring is an unstoppable force. Humans are, quite simply, programmed for it. From the first moment those insidious little buggers look into your eyes, you are smitten. Suddenly, dreams of early retirement, that Lamborghini and quiet holiday getaways at your beachfront unit must be set aside. You’ve now decided on a life of extreme fatigue, and the ability to identify a Bugaboo baby carriage at 50 paces.

That primal instinct to protect, support and love our kids has us championing their futures, and is the reason why a large swathe of the population is now concerned about housing affordability.

I think there are strategies which will not only help young folk into a home, but also set them on a path to financial independence.

 

The problem defined.

Now I’m not certain if you’ve noticed, but the property market is pretty much booming at the moment. If this is news to you, welcome back above ground.

A look over the latest numbers from CoreLogic tell a sobering tale for anyone who’s delayed buying real estate in the past couple of years. Across the combined capitals and regionals for the year to 31st August, property values rose 18.4 per cent and continue to increase at a rate of 1.5 per cent ever month.

While I can hear homeowners cheering in the background, that’s a staggering disappointed if you’re a young person hoping to buy a property. Think about it – you’re trying to put together a 10 per cent deposit for a modest half-million-dollar home in Brisbane, but every month you must add at least another $750 to that deposit goal just to tread water – and that’s without compounding the gains!

A tough ask for anyone, let alone those at the start of their careers or just out of higher education.

 

What the cool kids do

There is an ‘it’ crowd of young buyers getting creative about the market. These cool kids are hip to what’s happening, and are forging a new path (see how ‘now’ I am with young person’s lingo?)

Firstly, there’s co-buying. It can be with parents, extended family, friends and even, in some cases, complete strangers you may have met on some app.

Co-buying sees you share the purchase of a property with others. You buy as either ‘joint tenants’ or ‘tenants in common’ and, depending on which, can own equal shares or determined percentage shares of a property.

My hot tip – get legal and other professional advice before launching into this. If things go awry in the co-owner relationship, it could be an expensive break-up.

Then there’s the ever popular ‘rentvesting’ approach. This sees youngsters buy an investment property in an affordable suburb (usually on the cities fringe). They then rent a home for themselves in their desired location. It means they have a foot in the market and don’t have to compromise on lifestyle. It’s a great idea, but your still need deep pockets.

Then there’s assistance from mum and dad in securing a loan. Again, the rug rats are dragging on your good nature and innate parental programming to help, the sneaky devils! Financial assistance can be any mix of gifting money through to co-buying or providing property as security to help guarantee a loan.

 

Accidental investor on purpose

There is one other approach to property ownership and investment that should be shortlisted – and that’s becoming an ‘accidental’ investor on purpose.

According to our own research here at MCG, around one in four property investor became landlords without any prior planning. They simply chose to keep their first home rather than sell when it came time to upgrade.

I think there’s legs in being purposeful about this approach for young buyers today, even during the hot market. It would see them buy a reasonable property as a first home in an affordable location. They move into that home with full knowledge that it won’t be forever. One day, it’ll be the foundation asset of their property investment portfolio.

The upside is that that can take advantage of government incentives and tax breaks for first homebuyers. They can also enjoy the benefits of borrowing money as a homebuyer rather than an investor, which is usually lower interest rates and easier lending terms.

Then, once they’ve done their time, they can use the equity gained to finance themselves into their next home. And there’s no reason they can’t do it again and again as they build their holdings.

Here’s the added bonus to this approach – tax breaks.

Not only will young buyers likely save of CGT to some degree in the future, there’s also smart ways to do capital works to the property and use these to reduce your assessed income tax.

By using a depreciation schedule, you can boost your tax return each year, which means more dough to help you pay down your loan or buy another property.

And you don’t even need to wait until it’s a rental to do the works. Expenditure on your home can be depreciated over many years. It’s an excellent way to maximise the returns while progressively increasing personal wealth.

 

So, don’t sit idle. Get in there and find a way to be part of the property cycle. Take it from me – a wizened elder with years of experience – very few people ever regretted getting into the market as early as they could.

 

Should you invest in Queensland?

Posted on by admin

We live in the golden age of borderless investing. Remote inspections, locality-based buyer’s agents and other experts, and open access to a range of data and advice. 2021 has proved you don’t need to leave your armchair to invest in property across the nation.

So, in an era where literally every market is open to all investors from right across our wide brown land, where are a large proportion of prospective landlords looking to take a punt?

Well… it’s Queensland!

 

So hot, it’s cool

There are many reasons why everything is ‘coming up Queensland!’.

Firstly, their pandemic response has been enviable. To date, Queensland has a seen a total of just over 2000 cases of COVID 19 since the outbreak began.

Compare that to NSW with almost 72,000 cases, or Victoria with almost 70,000 cases, and you can see in sobering statistics how well the Sunshine State has coped – and all while avoiding long term shutdowns.

Then there’s been the relative affordability of real estate. CoreLogic numbers to the end of August show a median house price in Brisbane of $560,000, while in Sydney it’s $955,000 and Melbourne it’s $720,000.

Queensland is also entering a phase of major infrastructure works. Billions are being spent around the State on roads, transport, energy projects and utilities. The southeast corner is even more infrastructure heavy with major transport and entertainment project planned and underway.

And that means jobs!  For years, Queensland languishing when it came to employment, and this lack of opportunity was blamed for the property market’s failure to fire… but that’s all changing.

Then there’s lifestyle and the ability to work remotely. The pandemic proved we can live where we wish, and still work just about anywhere. This means Brisbane, its coastlines and hinterlands are opening to all manner of professionals who can work from their home desk and commute interstate as needed (border closures permitting).

Finally, the 2032 Olympics. While they’re still over a decade away, people are already talking about the impact the event will have. Again, this brings more infrastructure dollars and jobs to the region. But the Olympics will also shine a very bright international spotlight on Queensland and will undoubtedly have many overseas folk yearning for a move to our shores.

 

The move is underway

The analysis shows that despite tight borders, the great shift north is already underway.

Australian Bureau of Statistics internal migration numbers to August revealed Queensland had already gained around 25,000 people from other states and territories during the previous 12 months, with most of those coming from Sydney… and the numbers are continuing to rise. These sorts of figures haven’t been seen in Queensland since the boomtimes of 2003.

And investors are taking notice. The Property Investment Professionals of Australia Investor Sentiment Survey 2021 found 58 per cent of investors believe that the Sunshine State offers the best property prospects over the next year – up from 36 per cent last year. Plus, the number of investors who see Brisbane as the state capital with the best investment potential is now at 54 per cent as compared with 36 per cent in 2020.

Our own research at MCG showed Brisbane is an investor hotspot has its own quirks.

For starters, there are probably more out-of-state buyers snapping up real estate than even the locals realise. An analysis of 1500 of our jobs from October 2020 to August 2021 indicated that of the 37.7 per cent of the Queensland investment properties we’d dealt with were purchased by non-Queensland residents.

What’s more, despite it being the most affordable of the three big cities, investors were spending more per property in Queensland ($590,000) than the average for all other capitals ($540,000).

So those looking to get a piece of the region are willing to invest more per asset.

 

What’s the takeaway?

To me, people choosing to invest in Queensland are making a sound decision based on the available data, however a word of caution is warranted. Selecting the right asset is key. Out-of-area investors must try to understand the fundamentals of the local market, or at the very least commission a local buyer’s agents to help them source a holding.

Choosing a property at the right price point, and which has the best fundamentals for growth, looks to be a good bet for the river city in the coming decade.

Property Investors are being ignored and it’s hurting Australia

Posted on by admin

The government’s helping hand during 2020 has seen assistance arrive thick and fast to all corners of the community.

And rightly so!

Our economy would be tanking into an unholy mess if it weren’t for the help on offer. Fortunately, the past decade’s worth of decent fiscal management has seen the nation in a strong position to implement these measures.

But while I applaud the actions metred out to assist businesses, their employees, the unemployed and many others, there is one cohort that I believe continues to be effectively ignored.

Worse still, if we continue to shun them when handing out the help, many may exit their market resulting in chaos for the wider community.

The group I’m talking about is property investors

 

Are you joking?

I can hear the voices of dissent already, “You can’t be serious Mike! Property investors are money-hungry, high-net-wealth real estate hoarders who don’t give a hoot about anything except making more dough at the expense of tenants!”

I know the public perception of property investors isn’t exactly glowing, but let’s inject some common sense into the discussion.

For starters, residential real estate is our nation’s biggest investment class at $5.5 trillion according to RP Data. Bigger than the combined value of superannuation ($1.8 trillion), the stock market ($1.6 trillion) and commercial property ($0.7 trillion).

It generates vast cash flows of support not just for agents, property managers and owners, but industries like construction, development, maintenance, professional services and so on. All these folks rely on the income residential investment brings.

Australian Bureau of Statistics (ABS) census data also showed that of the nation’s 2.1 million property investors, around 1.5 million own just one investment, while approximately 400,000 own just two. That means around 90 per cent of all investors have modest holdings. These aren’t high-wealth individuals. They are mum-and-dad level landlords just looking to get ahead and plan for retirement.

Another factor to consider is that property investment is a voluntary decision. Why is that important? Well if property investors are disincentivised to buy assets, there are far less rentals available for the general population.

ABS data from 2015/16 revealed 25 per cent of Aussies rent from a private landlord, while just four per cent were in government- funded rentals.

We do not want to discourage people from investing in residential real estate, but that’s exactly what’s happened during this pandemic.

 

Where’s the money gone?

Major financial assistance has been extended to the general population to support businesses and their employees.

JobKeeper has been an enormous success by any measure. It helps households pay their rent and put food on the table, so I’d call it a win… although it is being wound back in coming months.

Of more concern was the disproportionate support handed to tenants early in the crisis at the expense of landlords. As soon as the pandemic was upon us, there were legislated moves to protect tenants from eviction.

Now, I’m a decent human and generally OK with this, but it did involve landlords giving up legally enforceable right under existing lease arrangements. It was also a blatant signal that legislators felt landlords couldn’t be trusted to do the civilised thing by their renters.

But landlords aren’t stupid. Apart from the fact most are very reasonable people, they also know helping genuinely hard-hit tenants would ensure their investments weren’t vacant.

So, the vast majority of investors stepped up and did what they could. Cut rents or deferred tenant debts.

There was help from the banks in terms of the six-month repayment holiday for borrowers, however this wasn’t free money. The amount is being recapitalised back into the loan and interest will be charged on this figure.

Another scheme was HomeBuilder which delivered a boost to employment in the construction industry… but it was applied to owner occupiers only, so investors missed out again.

This was a wasted opportunity in my opinion. Investors will complete renovations and maintenance on their assets, so any assistance to encourage this would have been ideal. Not only would it have supported construction, it would have benefitted tenants with plenty of new fittings, fixtures and finishes added to rentals.

Finally, in our recent federal budget there was literally nothing in terms of direct support for investors. There was some infrastructure spending to benefit everyone, along with some additional support for first homeowners, but that was it.

 

Forgotten cohort

From what I can see, a lack of substantive support for investors has been a bad decision.

Recent reports show that rental vacancy rates are resilient in many big cities, and much of this has to do with supply.

Finn Simpson, a manager at Belle Property Dee Why recently posted the following about the lack of available rental properties in Sydney’s northern beaches after soft numbers were delivered for his suburb:

“Dee Why isn’t an isolated case either. There is a shortage of rental housing up and down the beaches. This extreme lack of supply is causing the rental market to do crazy things – we are leasing properties extremely fast and are getting offers way above what the landlord is asking.

“It’s making it very difficult and frustrating for tenants looking at the moment.”

 

In other words, demand for rental property remains good and rents are unlikely to soften in the near term.

I have little doubt part of this has been a fall in the supply. Many landlords will have been offloading their investments to help boost their household’s financial situations.

Some landlords have also been frightened off by changes to their state’s rental legislation that delivered more power to tenants. Why take the risk when you can potentially be forced to keep a bad renter?

And here’s the shame – not everyone can afford to buy a home, so renting is the primary alternative. A lack of rental supply hurts these tenants due to rising rents and tighter vacancy rates.

 

What I’d have done

At the very least I think if we’d lowered the qualifications around HomeBuilder, and allowed investors to participate, it would have resulted in a huge win for all.

Another move would have been to address depreciation rules for investors. Allowing investors to create improved tax breaks to encourages spending on investment assets – another big win for landlords, tenants and auxiliary industries such as construction.

While I have no doubt these suggestion will be met with silence by the powers that be, I do think it’s time we all realised property investors are a foundational cohort in this nation’s economy, and a little support during this troubling year would have yielded exponential benefits across the board.

…

Mike Mortlock is a Quantity Surveyor and Managing Director of MCG Quantity Surveyors. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating. You can visit them at www.mcgqs.com.au/ Mike Mortlock is a Tax Depreciation expert, Quantity Surveyor and Managing Director of MCG Quantity Surveyors. He is a regular speaker and commentator having been featured in the Financial Review and Sky Business. MCG Specialise in Tax Depreciation Schedules and Construction Cost Estimating for investors. You can visit them at https://www.mcgqs.com.au/

Nationwide Coverage

Offices Across Australia

Newcastle Sydney Melbourne Brisbane Perth Canberra Adelaide