With our financial markets in upheaval and the media giving us mixed messages about the property markets, both home buyers and investors are wondering what to do. Is it a good time to buy or should they wait longer?

As uncertainty abounds and investors seek much needed answers in these troubled times, we turn to Michael Yardney, a leading Australian property commentator and director of Metropole Property Investment Strategists, to make sense of the hype surrounding Australian property markets and gain his thoughts on using a buyer’s agent.

There are many conflicting reports regarding the Australian property market and whether there will still be a major crash here, similar to what we have seen in the US. What are your thoughts on the future of Australian property markets?

Michael's response:

While the global downturn is far bigger than any slowdown that has occurred in our life time, all the reports clearly show that the best place to be seems to be in Australia. We will do better than almost anywhere else in the world.

Sure the latest reports  suggest we may have avoided a recession by the technical definition, but we still have some rough times ahead of us,  so I can understand why our readers need to understand what this means for property.

Let’s quickly look at the factors that I see as bolstering our economy and in particular our property markets, to get an idea of how property may perform over the next year or two:

1. Housing under supply

House prices have fallen significantly in many parts of the world, reducing consumer confidence and spending power and leading to slower economic growth. Yet despite all the gloom and doom predictions, house prices haven’t really slumped in Australia. Sure they have dropped a few percent overall and the value of some individual properties has dropped significantly – particularly at the upper end of the market, but in general median house prices in all our capital cities have held up well.

Simply, our population has been rising in recent years yet supply of housing hasn’t kept pace, leading to an under-supply of dwellings.

2. Strong population growth

Australia’s population is growing at the fastest pace in 20 years, mainly due to record immigration but added to by our ‘baby boom’. In Australia, the population is growing at 1.9% per annum and this is countering the previous trend of an ageing population. Higher population growth means greater spending, housing demand, employment and investment.

3. The strength of our financial system

Australian banks have not experienced the same challenges experienced by overseas banks. This means we are not experiencing a financial or banking crisis like many overseas countries. What we have is a credit squeeze.

4. The speed and extent of the Government stimulus

Our economy has benefited from a three pronged economic boost– increased government spending and stimulus, lower interest rates and a cheaper Aussie dollar.

Putting all this together ….I currently see the glass half full, while I know a lot of people see it half empty. If you have a secure job and the ability to service a loan, which has become much easier recently, now is the time to consider buying a well located residential investment property.

Because of these strong fundamentals, I have very positive views on the property markets in most of Australia’s capital cities in the medium to long term. While I am aware of the potential short term problems related to the credit crisis and poor market sentiment, this simply means that investors should be looking for property at the right price, in the right location, with the right rental income.

Overall, I don’t think the bottom is going to fall out of Australian property markets like some pessimists are suggesting. It is much more likely the opposite will occur and property values here will rise again.

Does that mean the property markets have bottomed?

Michael's response:
My honest response is…I have no idea - but the answer is probably not.

But my question to you is – “are we buying ‘the market’?" Clearly the answer is NO!

You are buying an individual property. One that you would be happy to hold in your portfolio in the long term and one that was bought sufficiently below market price so that even if the market fell a bit further, you would still have bought well.

The current low market sentiment for property is creating some great opportunities. Experienced investors know that the best time to buy is not when the market is hot and there are buyers are out in droves competing for over-inflated stock. Instead, they wait and buy when the market slows down.

There’s a saying in real estate that it’s not “timing the market”, but “time in the market” that makes a good investment. I don’t really agree with that. I know from experience that most of my money has been made buying property when others were too scared to.

Can investors buy a property anywhere in Australia and expect it to increase in value over time?

Michael's response:
Clearly our property markets have softened. And although prices here have held up quite well overall, we have 3-tiered markets in our major cities.

The lower end of the market is holding up well being buoyed by the first home owners taking advantage of the government grant.  However properties in the $500,000 to $1.2million range have been out of favour lately and present some great opportunities. 

In general properties above $1.2 million have fallen in value considerably, but probably would not have been the type of property we would have recommended as an investment.

Interestingly a little while ago, the Valuer-General’s Department released statistics of property growth over the past ten years. This report identified some areas where property values increased by 300 to 400% over the last decade. However there were also areas where prices had gone up by less than 50%.

In other words, if you bought a property for $100,000 ten years ago in a top performing area it would be worth $300,000 to $400,000 today, but if you bought in one of the lower growth areas, it might only be worth $150,000.

This demonstrates that as an investor, you can’t simply buy any property and rely on it to naturally increase in value. There are certainly excellent buying opportunities right now, but you need to know what you are doing.

So an investor can’t really just buy any property in a good suburb and expect it to outperform over the long term?

Michael's response:
The simple answer is no. When conducting our research to uncover properties that will outperform, we initially look for areas that have had the highest historic capital growth. Those suburbs that have consistently done well. Then we drill down to find the right street and locality within that suburb.

It’s not just suburbs that outperform, but specific streets and addresses too. Some properties have more appeal than others, some floor plans work well, while others are logistically messy and some properties have more potential.

I know our Buyer’s Agents at Metropole have a 53 point checklist we go through before a potential investment property gains approval to present to our clients. It’s about taking the guesswork out of finding that perfect property with the perfect address.

How can a buyer’s agency, such as Metropole, assist property investors and ensure that they buy the best possible property in order to meet their investment requirements?

Michael's response:
As I explained , in this market investors can’t just buy any property and expect it to increase as rapidly in value as was occurring in past boom times. Investors need to buy the right type of property, at the right price, in the right location.

At Metropole, we have buyer’s agents out in the marketplace all day every day, specifically searching for properties. We often know about properties that haven’t even hit the open market yet. Currently a large proportion of our purchases are “off market properties.”

By the time the average investor finds out about a property on the real estate websites, we have already seen it and at times dismissed it as a great investment.

Interestingly, we only bid on about 2% of the properties we research and are successful in purchasing about 65% of the properties we get really serious about for our clients.

Other people still buy those properties under the assumption that they’re getting a good deal. But we know better! All the numbers must stack up and that’s one of our critical roles – to keep the emotion out of the deal and make sure that at the end of the day, the property will be the best financial investment for the client in question.

When it comes to buying for our clients, we bring to the table an unsurpassed knowledge of local markets, and an understanding of how the property game works. There are many developers, marketers and real estate agents out there working toward one common goal – to make money. They’re not interested in savings for the buyer.

At Metropole, we can act as an independent, unbiased third party for the buyer and navigate through the marketing hype to secure investors the best possible deal on a new investment property. We can also negotiate or bid at auction on behalf of our clients, removing the emotion from the deal to get them the best price on their investment.

Couldn’t property investors rely on the selling real estate agent or property developer to guide them, rather than having to engage a buyer’s agent?

Michael's response:
As credible as many selling agents are, they are legally obligated to look after the best interest of the vendor. I have seen buyers pay tens of thousands more dollars than they may have had to by attempting to negotiate without full knowledge of what and where they were buying. While investors can find out a lot about property markets on the internet, they will still lack that all important inside information on key elements, such as comparable properties in the area and exactly how much they should be paying for the property.

A good buyer’s agent will have access to every property for sale with every agent and will advise their client about all the searches and checks they should carry out before signing on any dotted line, including building and pest inspections.

Do you buy properties for home owner as well as investors?

Yes, purchasing properties for owner occupiers is an important part of the service we provide. We help some first home buyers as well as many buyers upgrading their homes and have experts in the established home markets in Melbourne, Sydney and Brisbane.

While the criterion we use for choosing a home are very different to those we use to assist investors, our role in assisting home buyers make the right decision is just as important.

So what would you say to an investor or home buyer who thinks they can go it alone and save themselves the cost of a buyer’s agent?

Michael's response:
I would ask them how many times they have bought property and how good they are at negotiating the best deal. Do they know what a strata title is compared to a stratum title or a company share title? Do they understand the difference between an overlay, a covenant and an easement?

Additionally, how much do they know about selecting the best location for their specific investment strategy and requirements? What drives property values upward? What type of industries and businesses keep certain property markets more viable over the long term than others?

I have seen many investors get stung by the small details that they just weren’t aware of. A buyer’s agent who knows the local markets intimately is the best friend and ally you can have when investing.  And they can assist the homebuyer by ensuring they don’t get too emotional and overpay for their property.

Do you have any other suggestions or advice for property investors?

Michael's response:
Property investors need to remember that they make their money when they purchase the property. It’s all about “buying well”. There are three key elements to buying well.

Timing is important. Investing counter-cyclically, somewhere near the bottom of the property cycle, is the best way to get ahead in the game. The best buys are generally available during the late slump and upturn phase of the cycle.

It is crucial that investors pay the right price – to buy your property below “intrinsic value.”  So buyers need to understand fair market value in order to ensure they buy well.

Finally, and importantly, the property should have the potential for strong capital growth over the long term. We like to seek property that specifically has value add potential. That is, a property that might need a little bit of TLC or some minor cosmetic renovations that once completed, will gain the investor immediate capital gains and possibly better rental returns too.

And of course, my main suggestion would be to seek the services of a good buyer’s agent. Engaging a buyer’s agent like the team at Metropole Property Investment Strategists may initially seem like an added expense, but the money we can save you on the deal and the extra capital growth you receive in the long run, will far outweigh any associated costs. 

 

 Attention HOME BUYERS AND INVESTORS!