» Property hotspots

Here’s how to create a hotspot

Simon Pressley — Tue, 28 Jun 2016 05:17:44 +0000

The more property-related material one consumes the more times one will hear the term ‘hotspot’. At any point in time, if we were to take stock of every location around the country that every so-called ‘expert’ was declaring a hotspot we’d be well within our rights to be expecting that property markets across the entire country experienced a never-ending property boom that was bigger than the world had ever seen. What is a hotspot, anyway? If one was just about to purchase an investment property would it be wise to buy in a hotspot? Isn’t it more important what a market does over the coming several years than what it’s doing right now or might do next year? And, who among this ever-growing list of ‘experts’ actually has the credentials to warrant respect on property market outlooks? Property is a topic that attracts so much interest that every second person lays claims to being an ‘expert’ and it seems that human beings don’t take much convincing. It’s amazing how many people have placed so much value on the opinion of that friend or family member who we trust and respect because this person has been successful in their career (even though that career doesn’t involve studying property markets). Similarly, investors hang their hat on a good location to invest in property because it was suggested by a person in an occupation with ‘status’ – such as that well-meaning accountant, mortgage broker, solicitor, financial planner, or even the local doctor. I find that insane but it happens a lot. Then, of course, there’s the ‘experts’ who do actually have a full-time role involving property – some even have a really big profile – but the nature of how they earn their own income is such that their catch-cry is intentionally angled towards to promoting a particular location or a particular property. The property world is littered with vested interests and very few consumers would be able to detect who these people are. Here’s some statistics which will hopefully make one question whether or not it is probable that the property world does have so many experts. According to the Australian Taxation Office (ATO), there are 12.7 million taxpayers of which 1.94 million people (8 per cent of Australians) declare an income from a property (aka ‘property investors’). But, surely the definition of ‘investment property expert’ includes, although is not limited to, having a portfolio of several properties yourself? According to the ATO, only 0.9 per cent of taxpayers own six or more properties. I’ve done the math on that for you. A mere 0.5 per cent of Australia’s 24 million population own six or more investment properties. Now about those hotspots. If a market genuinely is ‘hot’, it’s almost definitely not the location with the best potential over the medium term anyway. Think about it: One decides to act on a claim of a hotspot so they get finance sorted, figure out exactly which pocket within that location is best to focus on, spend several weeks finding that ‘right property’, miss out on several, and then eventually do buy something, but at top dollar because the competition is so fierce. Most of the price growth in this cycle of that market is probably well behind us. The best potential for growth is in a market that is probably flat or showing mild growth – it won’t be hot. As the world’s most famous investor, the great Warren Buffett, says: ‘The time to be fearful is when everyone else is greedy and the time to be greedy is when others are fearful.’ Most claims of hotspots end up being bland-spots. Genuine ‘booms’ only come around once in a while. But, that won’t stop people constantly spruiking about the next hotspot. With human beings behaving as they do, let me show you how easy it is for someone to create the next ‘hotspot’ which, before too long, lots of people will invest in: First, a property data company makes an innocent observation of a possible new trend evolving and mentions this on their website, newsletter, and press release Some journalists, who are often drawn to the attention of these high profile data companies, pounce on the opportunity to use this information to help fill their weekly quota of so-called news stories. For a greater impact from the story they throw in some dramatic terms like ‘heating up’ and ‘ready to take off’. Millions of people end up reading these articles A handful of people who own or work within a property investment business of sorts start seeing this location pop up in their news feed. They fumble around and come up with a few generic stats like population growth rates, make mention of some features and benefits like ‘public transport’ and ‘infrastructure’ and, suddenly, they’ve produced a hotspot report of their own on this location. If they have a vested interest in ‘promoting’ property in this location, it’s amazing just how jazzed up that report can look once it comes back from their marketing department Before long, we have got consensus. Everyone (somehow) is reporting the same thing. Even though no bugger has done an ounce of proper research. The sheep fall in line, like well-behaved lambs all beating to the same drum Thousands of people who happen to be interested in investing in property around this time so they have a heightened interest in property-related material. They are super keen to quench their thirst for information to help decide exactly where they should be investing These same people do something other than study property markets for a living and they rarely seek out the opinion of one those genuine experts. Unfortunately, they don’t realise that ‘reading’ isn’t necessarily ‘research’; often it’s just ‘reading’. This same location keeps popping up so they decide that it must be true Mission accomplished. We have a hotspot If you don’t believe me about this stuff, just think back to the […]

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Hobart to become Australia’s best performing city

Simon Pressley — Wed, 25 May 2016 05:40:09 +0000

If we draw a line in the sand right now and cast our minds forward three years, of Australia’s eight capital city property markets my money is on Hobart being Australia’s best performer. While other so-called experts were berating Tasmania’s basket-case economy, Propertyology gave Hobart our official green-light back in April 2014. The first property which we purchased was for my own portfolio and, over the following two years, we’ve purchased fifty odd properties for our clients. Hobart and Tasmania in general had its share of economic challenges over recent years. The forestry industry completely closed in 2010, the were some mining-related job losses in the state’s north west, and a large percentage of students were dropping out of school after year ten. For several years much was written about Tasmania’s high unemployment rate and below average population growth rate. Property investors, myself included, for quite a while simply put Hobart in the ‘don’t bother’ basket. 58 per cent of the state’s population actually live outside of the state’s capital city so it’s often not appropriate to paint Hobart with the broader Tasmanian brush. Hobart’s unemployment rates are often much better than the state average. Two years on from April 2014 when Propertyology started investing in Hobart, Australia’s average unemployment rate had improved by 0.2 per cent (5.9 per cent to 5.7 per cent) while Hobart’s had improved by 0.9 per cent (7.0 per cent to 6.1 per cent). The reason Propertyology chose to focus our research energy on Hobart in the first place was because we believed that it had a mix of economic drivers with significant potential for prosperity at this juncture in the Asian Century. The OECD has forecast that an estimated 2.5 billion extra Asian people will transition from poverty to the middle class between 2013 and 2030. That places enormous demand on many of the goods and services which Australians have always taken for granted. Education, food manufacturing and tourism are of premium quality in Hobart. International tourism numbers have reached record levels for three consecutive years now, growing by 20 per cent to the year ending March 2016 compared to 8 per cent national growth. Plantation forestry has re-emerged and is creating new jobs in manufacturing and transport. Growth in retail trade figures has occurred for sixteen consecutive months. The ABS released a statement earlier this year saying that Tasmania’s economy is now growing at its fastest pace since 2010 and only NSW and Victoria were growing at a stronger rate. The improvement in Tasmania’s economy coincided with the end of a sixteen year reign of the former state government in March 2014. During 2014 and 2015, 9,000 extra jobs were created and interstate migration numbers have rebounded incredibly well. The correlation illustrated in this graph is fascinating. Of course, this directly increases demand for housing. And, unlike a majority of mainland capital cities, Hobart’s housing supply pipeline has been kept under control. In our opinion, Hobart is currently the most improved property market in Australia by a long shot. Propertyology forecasts that Hobart will be Australia’s best performed market over the next few years. The good times are only just beginning for Tassie. There’s a $600 million major upgrade of the Royal Hobart hospital currently under construction, development approval has recently been granted for seven (7) new hotels, and the state government has put the iconic Macquarie Point site out to tender for a Darling Harbour style precinct. Vacancy rates in Hobart are currently the lowest of all capital cities and all of clients are enjoying rental yields of 5 per cent to 5.5 per cent. Importantly, rates of new supply have been well controlled and the building approval pipeline indicates that this will continue for the foreseeable future.

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Northern inland NSW property scorecard

Simon Pressley — Fri, 15 Jan 2016 04:58:56 +0000

The property markets of ten out of the thirteen local government authorities (LGAs) which make up the New South Wales’ region of Northern Inland are ranked in Australia’s Top 30 per cent of property markets over the last fifteen years. Gunnedah and Liverpool Plains were the equal best performing markets in the region with a national ranking of 38th out of the 550 LGA’s in Australia. The median house price in Gunnedah increased from $80,000 at the start of 2000 to $290,000 by the end of 2014. The average annual growth rate of 9.6 per cent plus the 5.8 per cent rental yield equates to a total annual return of 15.4 per cent. Liverpool Plains’ median house price increased by an average of 7.9 per cent per annum and its average rental yield is 7.5 per cent. Propertyology conducted a study to compare the historical property market performance of each of Australia’s 550 local government authorities between 2000 and 2014. Given that some property markets have higher rates of growth and others have higher rental yields, Propertyology calculated the ‘total return’ (average annual growth rate plus rental yield) and we then ranked the LGA’s from 1 to 550 based on this performance. Glen Innes (ranked 70th), Narrabri (49th), Moree Plains (81st), Guyra and Inverall (equal 92nd) all featured in Australia’s Top 100. Tamworth had the highest population growth rate in the region – 1.1 per cent per annum for the last ten years compared to the 1.6 per cent national average. With a population in excess of 60,000 people, Propertyology regards Tamworth as an exceptionally strong regional service centre with an economy which is comparable to capital cities in regards to industry diversity. Tamworth’s property market was equal 163rd (with Uralla), making it amongst the best 30 per cent based on overall historical performance for the last fifteen years. Tenterfield (107th) and Armidale (173rd) out of 550 also performed exceptionally well. Propertyology’s study concluded that population growth doesn’t have the big influence on overall return as many think. The historical evidence shows numerous locations performed strongly in spite of modest, or even no, population growth. For example, Moree Plains’ population declined by an average of 0.6 per cent per annum and both Narrabri and Liverpool Plains had zero population growth, yet they all performed better than each of the 43 LGA’s in Greater-Sydney. Affordability and lifestyle are the common denominators. The Northern Inland region contains locations which tick a lot the boxes that Propertyology looks for when helping mum-and-dad investors to take advantage of the many opportunities that Australian property markets have to offer. Gwydir was the region’s worst performing property market, ranked 417th.

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