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Has the Australian property market hit the bottom?

The easy answer is probably yes, but the question is flawed. As we know, Australia is not one market and each state, city and even suburb performs differently. For example, Melbourne grew by just 3.9% over the last year yet the regional centre of Geelong grew by 14.7%.

Further, the Melbourne and Sydney markets make up over 60% of all housing value in Australia. This means that what happens in Melbourne and Sydney strongly influences the Australian property market figure.

The current property cycle is no different to cycles before it. Contrary to popular belief, at the top of every cycle there is a downturn. Take Sydney for example, Sydney grew by 79% over 4 years and this year reduced by just over 5%. That means, on average, that if you have owned a property in Sydney for at least 5 years your value has gone up 74%! Hardly anything to be concerned about.

So what will happen to the market moving forward and how much will it reduce? The fact is, population growth is still at record levels and according to BIS Oxford new construction starts are to reduce by a further 30% in the coming years which will just exacerbate the issue.

More demand and less supply should put a floor on prices. After all, those extra people are going to need somewhere to live and until supply increases again substantially that won’t change.

At Nyko, we believe trying to pick the bottom of the market before buying is impossible. The only time you can confidently pick the bottom is when the market has started to rise again.

I will leave you with the best quote I have found on this topic, an ancient Chinese proverb.

“The best time to plant a tree was 20 years ago. The second best time is now.”

And that quote is true for trees as it is for property.

To view this fortnight’s VLOG on youtube click here.

Buying at the right price and the science behind valuations

Buying your investment property at the right price can make a huge difference to the performance of the asset but more importantly reduce the risk associated with buying property substantially. That is why Nyko Property insists on an independent valuation to set the prices on all approved projects and has done so since inception 10 years ago.

The price being set by a real estate agent or a developer is not the right way to go about it. Developers price properties based on a desired profit margin not based on market evidence and real estate agents generally price properties at a level needed to win the developers business!

The main issue with this is the additional risk it creates. We often hear stories from investors on how they lost money on a property investment in the past. In almost all those cases, the reason for this was that they paid over market value for the property and were forced to sell within the first one to two years.

Most of these people had 5, 10 or 20+ year plans to hold the property but their circumstances changed forcing them to sell. This can, of course, happen to anyone. By overpaying, not only will they not be able to recover the price they paid for the property but there are additional costs too. Think of the cost to enter a property, like stamp duty, and the cost to exit, like agent’s fees. This could add up to an additional $50,000 or more.

Is the valuation process perfect? Of course not. The process valuers take is scientific but only to a key point. The scientific part of the process includes viewing the property and comparing it to recent sales of existing property (not new builds) within the last 3-6 months.

However, the next step is where the opinion comes in. The valuer needs to decide how the property compares to the other similar properties. The property can be one of three things, either inferior, comparable or superior. The difference in price based on that range of comparison can be tens of thousands of dollars.

So there is no perfect way to price a property. However, there is absolutely no doubt a valuation is the safest way to price a property as it is independent of vested interests. As we advise all investors, only buy property when you can comfortably afford it and do your research!

If you have any questions or would like any further information please do not hesitate to contact Nyko Property directly.

To view this fortnight’s VLOG on youtube click here.

Nyko Recommended Location – North Brisbane Corridor

This week we will be going through one of Nyko’s most highly recommended investment locations for 2018 – the North Brisbane Corridor.

Located within the Moreton Bay municipality, just 30 minutes north of the Brisbane CBD, 40 minutes from the Sunshine Coast, with the Redcliffe peninsula just 15 mins away. The North Brisbane Corridor offers residents access to both the city and sea within short commutes, with all the amenities required for a fulfilling lifestyle within the region. In fact, if you ask the locals there is no reason for them to go to the city at all!

The suburb that most interests Nyko within the region is Narangba. Nyko is not the only business that has identified Narangba and the North Brisbane Corridor in general as a location likely to experience population growth.  The Catholic Church builds new schools in locations that are expected to grow in population rapidly and across the road from the site Nyko has recently completed due diligence on, the Catholic Church has recently acquired a large block of land to build a new school.

The major retailers also use this methodology, with some of the biggest brands recently opening in the area. Bunnings, Ikea, Costco and Westfield North Lakes – which also houses a major commercial precinct and a soon to be built hotel, are all located in the area.

The North Brisbane Corridor is being invested in heavily by the State Government and the private sector, with major new infrastructure project being developed in the area. The largest of these is the new Sunshine Coast University’s Petrie Campus which is just 2 stops by train from Narangba. The University is scheduled to open in 2020 and will house 10,000 students and 2,500 ongoing employees with courses in law, business, science and engineering.

In addition to the university there are a number of infrastructure projects under way or planned including the Caboolture Hospital upgrade, the North Lakes Specialist Medical Centre, the Laguna North Lakes mixed use development, the Boundary Road update and Westfield North Lakes extension.

From an investment perspective the region stands out as a location likely to be one of the fastest growing in Brisbane and possibly across Australia. The North Brisbane Corridor already services 360,000 people with a spending capacity of over $4 Billion and is growing rapidly. The population growth expected between 2016 and 2036 is 90,367 people with 1,614 new properties required per annum to house them.

The region is already in high demand, with a vacancy rate of just 1.6% compared to 3.7% for the Brisbane LGA it shows that there is a market for both owner occupiers and investor alike.

 

To view this fortnight’s VLOG on youtube click here.

 

 

 

Will households in Australia get even smaller?

For those that have been to a Nyko Information Evening in the past or regularly read our blogs you would know that we are (for want of a better term) property agnostic. That is, we do not prefer one property type over another i.e houses, town house, apartments.

It is very much horses for courses, meaning the demographic in the area dictates the property type we recommend. If the location has mostly families with 2 children then we would likely recommend a house or larger town house, using the same theory if there are mostly elderly residents in a suburb then we won’t be recommending a 3-story town house with 6 flights of stairs!

When it comes to Australia as a whole, households are getting smaller. There are only 2.6 residents per household in Australia and while that low number may be a surprise to some, it is actually higher than many of our counterparts in developed western nations. England, Scotland, New Zealand and Japan all have smaller households and we are certainly trending towards those smaller households ourselves.

Interestingly only 45% of households in Australia compose of a couple with children, the remaining 55% include couples with no children, single parent households or single people. Theoretically, all of these people could comfortably live in a smaller dwelling like an apartment or town house.

Does that mean that we should all rush out and buy apartments? Well not necessarily, when Nyko performs our macro research and selects the locations we believe are most likely to perform, they may well consist of a dominant demographic group that would prefer houses or town houses. A case in point is Nyko’s current recommended projects, where all but one of the developments are town house or house and land locations, with the solitary boutique apartment project.

Over the years at Nyko we have seen apartments perform fantastically well in very selective projects and the theory that ‘apartments don’t grow’ is simply not true. When people speak negatively of apartments, what they often mean are ‘high rise apartments’ and the negative connotations that go with those. Boutique apartment blocks with owner occupier grade finishes will certainly continue to appeal to a large proportion of the population.

So the moral of the story is don’t concentrate on the type of property but rather the location that is likely to perform and then select the property type which best suits the demographic in that area.

To view this fortnight’s VLOG on youtube click here.

The Year Ahead for Property – Brisbane

Following on from last fortnights blog, in this blog we will be going through our picks for Brisbane – one of the two locations we will be recommending to our clients in 2018. The Brisbane property market is complex at the moment with apartments preforming well below expectation and landed property (houses and town houses) performing much better.

One of the main reasons we like Brisbane is because of its affordability. Housing prices in Brisbane are approximately 40% lower than Melbourne’s and half of those in Sydney. With a beautiful climate and great connectivity to South East Asia it is no surprise Brisbane has seen high population growth in recent years. Most interestingly, employment growth in Brisbane has increased significantly, outperforming Melbourne and Sydney in 2017. This is a big turnaround, in the previous 5 years Melbourne and Sydney had accounted for over 75% of employment growth in Australia to just 11% in Brisbane (the third best performer).

There are risks though. A highly oversupplied inner-city apartment market and nervous lending environment means it’s more important than ever to educate yourself on the market and buy the right type of property in the right location. Nyko’s recommended projects this year will be focused on landed property – that is house and land packages and larger town houses built to owner occupier grade standards.

Brisbane is experiencing a similar phenomenon to what Melbourne experience in the last 5 years and Sydney before that.  That is a flight to quality dwellings built to the standard an owner occupier buyer would appreciate and not a cheaper investment grade finish providing smaller dwellings and lower quality finishes. This flight to quality means that we not only have to pick the best project in the best location but more importantly the right builder and developer.

For town houses, middle ring infill suburbs will be our main focus. Larger internal areas in locations where housing stock is becoming unaffordable for the demographic will see a great market for town houses. There will however be a huge discrepancy in performance between high spec owner occupier grade town houses compared to the investment grade (cheaper finishes) property. Our focus will be on high quality projects built by great developers who are known to build for owner occupiers in the local market – this will help to underpin valuations and growth.

For house and land we will be focusing on high growth locations within 25km’s of the CBD as well as high quality inner city infill locations that we know have performed extremely well in the more established Sydney and Melbourne markets. While prices will be higher for these types of homes, we have seen that quality housing in sought after locations will perform well in the medium term.

At Nyko we believe this will be Brisbane’s year and if you take the time to do the research and get the right advice, picking the right property in this market will means it will likely perform as well as the Melbourne marketplace and certainly better than the Sydney market.

 

To view this fortnight’s VLOG on youtube click here.

The Year Ahead for Property – Melbourne

Welcome to this fortnights blog. It will be an interesting year for property in Australia with Sydney’s market now 3% below its peak in July 2017 and Australia down 0.7% from its highs late last year.

However, low mortgage rates, strong jobs growth and falling unemployment along with high migration and supply constraints should see a soft landing in Sydney and while Melbourne growth will slow, we still expect to see Melbourne perform well in 2018.  In today’s blog we will take you through our prediction for the Melbourne market and next fortnight we will be covering Brisbane.

House and land in the north-west of Melbourne and Geelong, price point town houses in the south-east and north-west as well as boutique apartments in very selective parts of the south-east of Melbourne are likely to perform best.

 

House & Land

The north-west of Melbourne is undervalued in comparison to the south-western corridor, which has increased by over 40% over the last 2 years. It will also be pulled up by the substantial growth just south in Caroline Springs – less than 5 minutes’ drive from our recommended estates.

Geelong, our best performing pick in 2017 experienced 14% growth and we expect that growth to continue in 2018. Geelong is Melbourne’s equivalent to Wollongong or the Central Coast in NSW – being well connected to the metropolitan area by train and road as well as offering a great seaside lifestyle. Geelong will further benefit from large population moves from Melbourne as well as huge jobs growth. There has been 10,000 new jobs since 2006 and over 1.3 billion in infrastructure spend already delivered with 2.3b more in the pipeline.

Town Houses

With prices moving forward rapidly for houses in Melbourne, Nyko believes price point town houses in both the north-west and south-eastern regions of Melbourne will perform extremely well – bringing affordable living to locations were some Australians are now priced out.

Apartments

Lastly, middle ring apartments in small developments in extremely selective suburbs will also perform well. It is even more important to do your research here – while we believe there will be some great performing apartment developments it will be much easier to get it wrong in this space.

While we expect the Melbourne market to continue to perform in 2018, there will certainly need to be much more care taken with the selection of property and locations. Contrary to 2017 and 2016, the majority of suburbs will not be winners in Melbourne this year – it is more important than ever to make sure you get great advice and do your research before making a purchase.

 

To view this fortnight’s VLOG on youtube click here.

The best time to plant a tree was 20 years ago. The second best time is now.

This brilliant Chinese proverb is undoubtable true not only for tree’s but also for the Australian property market. When clients inevitably ask me ‘is now a good time to buy?’ I often recite this proverb. When it comes to buying property, trying to time the market is futile. At Nyko we believe you should buy when you can comfortably do so and ensure that you purchase a quality property with the right characteristics for continuing demand for both rental and capital growth.

If you are an investor, the key is to then have a strict hold strategy. While we say 5 years is the absolute minimum an investor should hold, 10 years is preferable. In markets like Melbourne, you normally get through a full property cycle in 5 years but in Sydney for instance, that same cycle may take 10-12 years.  Prior to the most recent housing boom in Sydney, property prices grew below inflation for almost 10 years – so if you sold at the 10-year mark you would not have realised any real growth.

However, if you held just 5 more years you would have been very heavily rewarded with 74% growth in that time – that’s an increase of over $500,000 in the median.

Obviously buying at the top of the market will mean you have to wait longer for the growth which is not ideal. At Nyko we are recommending very specific locations within Brisbane and Melbourne which have the right characteristics for continuing demand. Brisbane is just starting to rise from the bottom of their cycle while the more mature Melbourne market probably has the best underlying economic and demographic drivers and some way to go in this current cycle

Selecting the right location and property is vital. Nyko Property has recently had some amazing success by making sure our research methodology is sound and that we are buying quality property. The success is mostly due to market movements, however buying the right property in the right area opens up the opportunity for above average growth and that must be the goal.

An example of this was a town house in the beachside suburb of Bonbeach, 32km’s south of Melbourne’s CBD. Our client sold thi8s property within 5 months of settlement in March this year for a massive 22% gain.  Another example is a boutique apartment block in the middle ring south eastern suburb of Carnegie, with a 2-bedroom apartment growing at ~12% in the first year.

While trying to time markets is futile, researching your options thoroughly and buying the right property opens you up to the opportunity for growth earlier in the cycle.  Did we know Bonbeach and Carnegie would grow so much in the first year? Of course not, that would be near impossible. But by buying a high-quality property in a suburb that had the characteristics for growth we opened ourselves up for the highest possibility for growth.

 

To view this fortnight’s VLOG on youtube click here.

Pearls of Wisdom from Warren Buffett (part 2)

In last fortnight’s blog we discussed Warren Buffett’s quote on value and today we are going to run through another of his pearls of wisdom on investing.

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” Warren Buffett

While this quote is specifically about investing in companies, the theory is the same when selecting any other asset class to invest in – including property.  Buy a quality property at fair market value rather than a low-quality property at a discount.

With the power of compounding growth the small amount you may get discounted of a lower quality property will be minuscule compared to the higher growth better quality properties may return. See below for a fictional scenario to show the power of compounding growth and why selecting the right property is so important.

A $500,000 property grows at 7.18% per annum for 20 years:  The value would be $2,000,000

A $500,000 property grows at just 2% less per annum for 20 years:  The value would be $ 1,375,000

That is a whopping $625,000 in difference over a 20 year period!

This is something that investors in Australia need to place a lot more importance on. Unfortunately, one of the more common requests we continue to get from would be investors is to try and get a discount on a property. One thing that is certain in property, is that unless we are in a highly depressed market, a high-quality property is never discounted and discounted property is never high quality.

Think of the suburb you live in. When is the last time a property sold for what you would consider a bargain, where was it located and how does it compare to the rest of the suburb?    When buying quality property for investment, the best we can hope for is buying at true market value, not an inflated price set by an agent or the developer.

This is why Nyko Property requests a valuation for every project we approve. In a hot market, this can make things difficult. More than once Nyko Property has found a fantastic project in a great area, that we were confident will perform, but the developers were not happy with the valuation price.

Now it must be said, developers are hardly ever ‘happy’ with the valuation price but because we can offer them high-quality clients quickly, which helps them get their project funded quicker, the value to developers outstrips the often-lower price and we can bring you the great projects that we do.

When buying new, the only true way to set a fair price, away from vested interests, is to enlist an independent top tier valuation firm to set the prices.

 

To view this fortnight’s VLOG on youtube click here.

Pearls of Wisdom from Warren Buffett (Part 1)

“Price is what you pay, Value is what you get”

 Warren Buffett

 

Warren Buffett is commonly referred to as the most successful investor on the planet and if you have been to a Nyko Property Information Evening, you would know that I am somewhat of a groupie!  While Warren Buffett has many fantastic quotes, there are two that especially ring true to us here at Nyko Property and we will be covering each of these in a blog over the next two fortnights.

In today’s blog we will be discussing his famous quote on value, “Price is what you pay, Value is what you get”. This is such an important clarification when it comes to buying any asset and especially property. Price and value are two very different things. Just because we pay a certain price for an asset, doesn’t mean that is what it is worth.

When buying investment property, especially new property, the value you pay for the asset goes a long way to determining whether it will be a successful investment.  Buying a great property, in a great location, that fits the demographic well should be enough to ensure the property performs. However, if you buy that property at the wrong price, all of those positives can be negated.

When this is explained, someone will inevitably say to me, ‘but if I hold the property for 10 or 20 years I won’t even notice if I overpaid for $20,000 or $30,000’.  While that may well be true, paying over the odds in the first instance not only reduces the return over time but more importantly significantly increases your risk.

After all, Real Estate is an illiquid asset. Meaning that when you want to sell, it can take months to find a buyer and settle plus it is costly to exit. There is the stamp duty you initially paid, agent’s fee’s, legal costs, capital gains tax and more.  Buying an investment property is not a decision you want to get wrong.

This is especially true if you are forced to sell within the first couple of years of ownership. Nobody ever thinks they will be forced to sell but things can change quickly in life and you want to make sure you are in the best possible position should this occur. This is when it is most important to have bought at the right price.

These reasons are why, at Nyko Property, we place such a high significance on providing independent valuations from top tier valuation firms to set the prices on all our projects.  While our research has changed and significantly improved over the last 9 years (where has the time gone!) this is something that we have always insisted on.

We believe enlisting an independent valuer to price the properties is the only way to fairly set the prices on a property without the clouded judgement from self-interest that an agent or the vendor may have. This is especially true for new property, which is much harder to price.

When a valuation is conducted on a new project, it is a conservative estimate as if complete at the time of assessment – not a guess on what it would be worth when construction completes in 6 or 12 months.  And as an investor, that is the best you can hope for. Buying a quality property at a fair price.

Thank you very much for taking the time out to read this blog. Next fortnight we will have the second instalment of the Warren Buffett pearls of wisdom blogs, with a discussion on what types of companies (property for us) Warren recommends people invests in.

To view this fortnight’s VLOG on youtube click here.

Investment Grade Property

First of all, let me state that I really dislike the term ‘investment grade’ when it comes to property. Whenever I hear that term I think of property built for tenants. Hard wearing surfaces, cheap fittings and smaller internal areas.

While some might argue that is acceptable to tenants (I disagree, the better the finishes the better the potential tenant) it certainly does not provide the highest likelihood for capital growth. After all, owner occupiers make up over 60% of all property buyers and they are more likely to pay a higher price for a property that pulls at the heart strings. If you are a home owner buying your ‘forever home’ or a property in a location that has your favourite parks and restaurants you are more likely to pay above the market to secure that property.

After all, if it is your forever home and you are going to live in it for 20 or 30 years what does an extra $40,000 or $50,000 matter? While that may be true for owner occupiers, it couldn’t be further from the truth for investors. A high-quality property bought at the wrong price does not make a good investment.

At Nyko Property we believe that investors should buy owner occupier grade property for investment. That means, buying a property that fits the demographic in that area in terms of size, amenity (bedrooms) and finishes. Of course, you cannot go too far and overcapitalise, however buying a property with an acceptable level of finish for owner occupiers in that location gives you the highest likelihood for above average capital growth.

Buying a property that appeals to 100% of the property market, not just the 40% of investors, offers you the opportunity to maximise competition and create emotional responses that can often get you the best price.

To view this fortnight’s VLOG on youtube click here.