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Catherines Chat

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Gladstone - strongest queensland property market

Thursday, October 04, 2012

Investor darling mining town Gladstone strongest Queensland regional housing market, while Bundaberg struggles like the Gold Coast

By Cassidy Knowlton
Monday, 09 July 2012

Regional areas have outperformed capital cities in the year to March, according to ANZ, with Gladstone leading the way in Queensland. 

"Despite being lower in annual growth terms, regional house prices have been more stable than capital city house prices, which have seen larger price falls across all major states and territories," notes the Australian Housing Chartbook.

"Across states/territories and regions, house price growth has continued to differ, reflecting varying economic performance across Australian industries."

"Queensland has shown the greatest intra-state variation in regional house prices, reflecting the divergenteconomic performance of regions exposed to the tourism sector (i.e. Cairns, Gold Coast) and mining-relatedservices (Gladstone, Mount Isa)," the report says.

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Source RP Data, Rismark, ANZ

Property Investment Opportunities

Thursday, October 04, 2012

From western Sydney granny flats to East Brisbane workers’ cottages: 15 eclectic investment opportunities under $500,000: HTW

By Larry Schlesinger
Thursday, 19 July 2012

There is a wide range of opportunities for property investors with a “lazy” $500,000 to invest and a creative mindset, according to the July edition of the Herron Todd White Property Market report.

Herron Todd White says the results of this year’s “lazy half million issue” show that “market performance has varied as much as the landscape”.

Investment options range from buying an older house in western Sydney on a large block and adding a granny flat, investing in four-bedroom homes near Newcastle University and converting them into student accommodation or considering a worker’s cottage in East Brisbane.

Here are 15 eclectic investment opportunities for savvy investors with $500,000 to invest:

Build a granny flat in western Sydney (rental returns of between 6.5% and 7%)

Investors should consider purchasing a circa  1960s to 1970s dwelling on 650- to 700-square-metre allotments and erect granny flats on the rear of the allotment, thus creating two separate tenancies. According to HTW, this type of investment has grown from a trickle to a flood and is mainly taking place in the Penrith Council area, although it has started to creep into neighbouring Blacktown Council area as well. Typically the investor is paying somewhere between $280,000 to $330,000 for the existing dwelling and between $60,000 to $80,000 for the granny flat plus spending an extra $25,000 on sprucing up the original dwelling. According to HTW the dual tenancies can generate monthly rent of $600 ($350 for the main house and $250 for the granny flat) with vacancy rates at practically 0%. HTW considers granny flats the “best investment from a rental return basis in the western suburbs”.

Convert a four-bedroom house close to Newcastle University into student digs

Investors should look at the Newcastle suburbs of Birmingham Gardens and Jesmond close to Newcastle University in Callaghan. HTW says investors are buying four-bedroom homes and turning them into six- and eight-bedroom residences and then renting the rooms separately to students. “Although rental returns are higher (as, however are the management costs), it is important to ensure that the right approvals  are in place otherwise you might find a nasty surprise  when the bank comes to value the property and you find its still valued as a four- bedroom home,” warns HTW.

Buy a pre-1980s houses in Port Macquarie and Forster

Investors should look for houses close to either the town centre or beach priced from $270,000 to $340,000 in Port Macquarie and Forster on the NSW mid north coast. HTW says the remaining $160,000 to $230,000 could be used to acquire a pre-1980s two-bedroom unit within the same location parameters. According to HTW, houses in the low to medium price range offer the greater likelihood of lower vacancy rates, higher yields and better potential for capital growth. Investors should avoid modern high-rise units in Forster in the $400,000 plus price range, as the market remains oversupplied.

Buy workers' cottages in East Brisbane

HTW says entry level workers cottages with two-bedroom, one-bathroom configurations can be bought below the $500,000 mark. “The suburb is frighteningly close to the CBD and facilities abound. Renters are readily available so the upside is once again a good thing,” says HTW.  For something a little bit more flash in the same suburb HTW suggests a circa-2000 unit with a two-bedroom, two-bathroom layout for around the $425,000 to $450,000 mark would rent for around $440 per week.

Buy a detached post-war home in Camp Hill or Coorparoo

Investors can pick up a detached post-war three bedder in Camp Hill or Coorparoo on a 600-square-metre block.  The suburbs are about 1o kilometres south east of the Brisbane CBD, with “facilities are around the corner” and “renters keen to be there”. According to HTW, these assets also look good for a long-term future sale.

Buy an older house close to the beach at Wollongong

Investors should consider buying an older house close to the beach at Towradgi, Fairy Meadow and East Corrimal just north of the Wollongong CBD. From an investment perspective good capital gains coupled with high rental returns can be found in Fairy Meadow, with the suburb benefiting from the expansion of the University of Wollongong, Innovation Campus and an improvement of public transport to and from the suburb. It is also close to the F6 freeway to Sydney.

NSW Property hotspots

Thursday, October 04, 2012

Dubbo, Ballarat and Townsville are pumping property hotspots, proving mining's not the only show in town: Terry Ryder

By Terry Ryder
Monday, 13 August 2012

Analysis in any field is meant to be a process of gathering information and drawing objective conclusions from the evidence. 

But that’s so last year. The modern way in Australia is to establish conclusions first and then seek evidence that supports it. Anything that doesn’t fit the pre-determined theory can be quietly ignored. 

Then you apply the old principle that if you repeat a lie often enough, people will eventually accept it as the truth. 

Analysis today often starts with the media sound-byte and works backwards from there. 

This is how we have arrived at the “reality” of a two-speed economy. The idea is trite, infantile, pathetic and plain wrong. 

But it’s there every day in headlines and articles and broadcasts – as an unchallengeable fact. Even though it’s a lie. 

National Australia Bank chief executive Cameron Clyne says talk of “a two-speed economy” is simplistic, incorrect and damaging to confidence. 

“It is not a two-speed economy,” he said, “It has never been a two-speed economy. It is a 10-speed economy. It always has been a 10-speed economy and always will be a 10-speed economy. There are a number of industries which are having very buoyant times – just as there are a number of industries that are struggling.”

When the ABS published data on jobs creation in June, most media coverage focused on the number of jobs created in the mining industry, with more references to the two-speed economy. In doing so they ignored the inconvenient truth that mining ranked only third for jobs creation. 

The leading economic sector in Australia in the past year is the “professional and scientific sector”, which puts mining in the shade on jobs creation. Number two is the health care industry. “Education and training” has also been a positive force in jobs creation recently. 

These sectors have received no publicity, amid the media’s obsession with resources as the only happening thing in our economy. Nor has the agricultural sector been given its due for the series of bumper results for commodities such as wheat and cotton. 

The vitality in multiple economic sectors explains why some of the strongest regional economies in Australia have little or nothing to do with mining. 

Townsville in Queensland is one of the best, because it is strong in multiple sectors, including tourism, government administration, the military, education and manufacturing – with some linkages to the mining industry also. 

Ballarat in Victoria is one of the unheralded stars of economic Australia, a place of bustling activity in many different spheres. This important regional city is strong in education, health and community services, tourism and manufacturing (a sector which is not dead, notwithstanding all the negative headlines). 

Ballarat is growing and plenty of new things are being built. I could make similar comments about nearby Bendigo, too. 

Whenever I mention Dubbo in the same sentence as the word “hotspot”, people are incredulous. For some reason no one expects anything exceptional to happen in places like Dubbo. But this is a vibrant regional city moving forward with increasingly large strides. 

It’s a strong regional centre for the Orana district of New South Wales, with big roles to play in education, medical services, support for agriculture, transport and logistics (it sits at the intersection for major routes road, rail and air transport) and tourism (it has the Western Plains Zoo, among other things). Developers are busy and lots of construction is happening, including work on residential, retail, commercial, wind farm and National Broadband Network projects. 

Centres like Townsville, Ballarat and Dubbo would not be pumping if mining was the only show in town.

Terry Ryder

Property Investment and the mining boom

Thursday, October 04, 2012

Australian mining project investment to peak in 2014: ANZ

By Larry Schlesinger
Monday, 13 August 2012

ANZ forecasts mining projects to peak at around $37 billion in 2014 in its August Major Projects report.

Mining sector investment

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Source: ANZ

Overall the bank expects infrastructure project investment to peak earlier in 2013 under revised projections, but to a higher peak.

"This largely reflects improved estimates of the timing of expected capital expenditure across years for the major LNG [liquefied natural gas] and coal projects," says ANZ.

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Source: ANZ

ANZ says the majority of infrastructure investment will be concentrated in the mining and energy sectors, with the investment pipeline across these two sectors totalling $380 billion between 2012 and 2016.

Given the concentration of investment in the mining and resource sectors and related infrastructure (i.e. ports,railways and harbours), the resource-rich states of Western Australia, Queensland and Northern Territory will receive the lion’s share – around 75%, or $450 billion – of the total investment expected over this time frame.

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Source: ANZ

Property Investment in Mining Towns

Thursday, October 04, 2012

Regional centres provide some of the returns of mining towns – without all the risks: Terry Ryder

By Terry Ryder
Thursday, 16 August 2012

Mining towns present the ultimate risk-return conundrum for property investors. 

They’re so hard for property investors to resist. They have the highest capital growth rates in Australia, and they have the highest rental returns. 

They also are the riskiest options for property investors. Mining towns are single-industry economies – sometimes single-employer economies – and are vulnerable to downturns in the lone industry. 

Over the past 10 years a typical suburb in an Australian city has averaged capital growth around 10% a year (thought certainly not in the past two years). The best suburbs in cities like Brisbane, Melbourne and Perth have averaged 14% or 15% – which is pretty good, because at those growth rates values are doubling every five years. 

But the best of the mining towns have capital growth averages double those growth rates. Both Moranbah and Dysart, coal-mining towns in Queensland, have recorded growth in their median house prices averaging more than 30% a year. So too has Newman, deep in the Pilbara region of Western Australia. The median price for Cloncurry in western Queensland rose 60% in the past 12 months. 

But the lure of the mining towns doesn’t end there. They also offer the highest rental yields in the nation. Many of them have double-digit rental returns. With the current surge in resources projects, particularly in Western Australia and Queensland, some mining towns can provide initial returns above 15%. 

But it’s never plain sailing with mining towns. They lack diversity, so their economic life is a roller coaster. Some also service the surrounding farming economy, but the high levels of prices and rents are based on demand created by the resources sector. 

This makes these locations highly vulnerable to downturns in the mining economy. When the global financial crisis struck in 2008, global demand for Australian resources fell. Miners downsized and in some cases shut down mining operations.

In coal-dependent towns like Dysart and Moura in Queensland, residential vacancies rapidly rose from near-zero to double digits. Gladstone, which has had four years of strong growth in house prices, had a 10% decrease in prices in 2009. 

The small WA communities of Ravensthorpe and Hopetoun were devastated when BHP Billiton shut down a $2 billion nickel mine that had been completed only months earlier – 1,800 people lost their jobs and property values fell. Hopetoun’s price performance since then has been a decline averaging 6% per year. 

More recently, we have seen mining companies refusing to rent properties in Moranbah over concerns about the high levels of house rents and upheaval in nearby Dysart followed the closure of the Norwich Park mine. Neither of these events is terminal to the towns’ investment prospects, but they demonstrate how uncertain property ownership can be in mining towns. 

Ultimately, an individual’s attitude to investing in mining towns, or not, depends on their objectives, risk profile and experience as an investor. 

It’s important for investors to understand their goals and to have a strategy for achieving them (it’s surprising how many don’t). Equally important is understanding their attitude to risk. If they prioritise safety and low risk, mining towns are not for them. 

For anyone starting out as an investor, mining towns are not a good option. They may provide big gains short term, but ultimately values may decrease sharply if a downturn occurs, such as the one that followed the onset of the GFC in 2008. 

On the other hand, experienced investors with substantial property portfolios may be happy to accept those risks within the context of a portfolio that has assets in safer locations.

Generally, investors wishing to safely exploit the rise of the resources sector should look at buying in regional centres that benefit from the mining upturn but are not dependent on it. 

Regional cities and towns such as Toowoomba and Mackay in Queensland, Geraldton in Western Australia, and Muswellbrook in New South Wales have diverse economies but also prosper when the mining sector is rising. These are safer options than mining towns.

Terry Ryder

Investing in Property Hotspots

Thursday, October 04, 2012

Nine pieces of wisdom for finding and investing in property hotspots

By Larry Schlesinger
Thursday, 23 August 2012

Here is a quick list of nine pieces of wisdom to guide your thinking as you seek a property investment. Property Observer has cherry-picked some bright ideas and insights from some long-time property players.

1. Pick gems before they have gotten their shine

John Edwards, the Residex forecaster, says the best investor returns are made when you buy at the right price, in the right place and at the right time.

Edwards stresses investors need to keep in mind that locations that already have a reputation for being a hotspot have most likely passed their invest-by date by the time you actually find out about them in the published hotspots lists. The Residex boss says a current “gem” is just that – current – and the opportunity to maximise returns has passed.

2. Pick investments with an element of scarcity

The WBP Property Group chief Greville Pabst suggests investments ought to have high land value and an element of scarcity. He gives an example of buying an apartment in a period-era block of flats in an established suburb, where there may only be half a dozen apartments built on valuable inner-city land, versus buying an apartment in the high-rise apartment precincts, and obvious building construction hotspots, where you are likely to be the owner of one of 100 similar apartments in the same development.

3. Look for nearby employment opportunities

Investors should look for nearby employment opportunities for tenants and/or owner-occupiers that are easily accessible, says PRDnationwide research director Aaron Maskrey. He says it’s essential for incoming residents to be able to source employment within the local region. Don’t just peruse the property websites, monitor the employment internet sites.

4. Don’t rely too much on population growth data; vacancy rates provide a better guide

An increasing population indicates work opportunities, investment in infrastructure and demand for housing, but according to buyers’ agent Catherine Cashmore, it does not always result in the best long-term capital growth.

Cashmore says it is always important to analyse the reasons behind any surge in population and conduct an assessment on the longevity of the move before committing to a purchase.  The approval of “mooted” residential developments is the first risk that must be evaluated to protect against periods of oversupply of any one type of accommodation, she says. Jobs are transitory and because workers choose only to rent, when the work dries up, the majority don’t hang around.

Cashmore says as a general rule investors should try and seek out those areas where turnover is low, with a good proportion of owner-occupiers to renters and a diverse range of accommodation. The 2011 census gives good insights.

5. Look for locations with good infrastructure


Investors should look for locations with good access to public transportation and nearby arterial roads/highways, PRDnationwide research director Aaron Maskrey says. He encourages investors to ask questions like: Is there new or improved transportation infrastructure? Is the area identified for future gentrification by local council? Is there a limited available supply of dwellings to meet current and future demand? What about planned developments in the area?

6. Heavily discounted properties are not always a bargain

At any one time every location across Australia has a significant amount of property stock where the price has been discounted. But just because the price has been reduced doesn’t mean the property is for sale at fair value. The property may still be overpriced.

SQM Research director Louis Christopher says some properties may still be overpriced, even if they have already been discounted by over 30%. Louis Christopher recommends investors disregard asking prices and instead focus on what comparable properties actually sell for to figure out if a property is overpriced, has met the current market or is at under market value.

7. Focus on the property, not the hotspot

You are buying a property, not a whole town or suburb, says Property Observer editor Jonathan Chancellor.

While hotspots provide a guide as to where to look, you should not let them narrow your field of vision. Excellent investment opportunities can appear within markets that are not themselves hotspots, they may even be in decline. The key is to focus on the underlying value of the property itself and its potential for capital growth and rental returns, depending on your investment outlook.

8. Look for signs of the next “Paddington” and trust your intuition

John McGrath, CEO of McGrath Estate Agents, says he does not look too closely at the finer details but instead looks for a feeling or indicators that a suburb is on the move. He looked at Paddington in Sydney many years ago when it was a virtually unwanted location. It proved over a 10 or 15-year period that it was one of the fastest growth suburbs in Australia.

Looking back, McGrath says he saw a suburb close to the city, of medium to high density property, with a lot of people wanting to get in there, from types of buyers that pushed prices up significantly. He recommends looking for the next Paddington in their particular marketplace, which really comes back to having an intuitive sense along with doing your research.

9. Sometimes it’s best to just do nothing

Bear in mind this quote from Warren Buffett: “The trick is when there is nothing to do, do nothing.” Yet many investors get itchy feet and want to do the deal.

There are stages in the property cycle and times in your investment journey when it is best to just sit back and wait for the right opportunities to come along, because wealth is the transfer of money from the impatient to the patient.

Five potential Melbourne hotspot suburbs

Thursday, October 04, 2012

Five potential Melbourne hotspot suburbs

By Frank Valentic
Wednesday, 05 September 2012

We’re all aware Melbourne is facing a shortage when it comes to affordable housing, especially if you have your heart set on buying within 20 kilometres of the CBD.  However, there are still some affordable hotspot suburbs that fall well below the average Melbourne median price and will make it easier to help secure your next property. From the outset, you need to know how much you can really afford to spend, as this will dictate the properties available to you.

At Advantage Property Consulting, we are regularly trying to locate hotspot suburbs and have assisted over 2,000 clients in achieving their dream of owning a property.

So what is a hotspot?

A hotspot can best be described as an area that has not attracted the same level of attention as traditional blue-chip locations. They are often identified as areas that are underperforming, usually within close proximity to more popular suburbs.  When an area becomes too expensive for people to afford, they usually move to these neighbouring suburbs that are more affordable, causing a positive outward ripple effect.

What are some important things to look for before buying into a hotspot area?

Pick a diamond in the rough Choose a well-positioned property that represents good buying value.  An unrenovated property can often be purchased under market value, offering the chance to improve and increase equity over time. If it is well supported by strong infrastructure and lifestyle amenities, then the chance of gaining a good investment return is higher.

Follow the ripple effect outward If you’ve been priced out of a more expensive inner-city suburb, look to its surrounding areas to try and pick up a bargain.

Choose an area with good quality stock/dwellings For example: buying a period-style apartment in a block of four versus buying an apartment in a high-rise precinct where you are the owner of one of 100 similar apartments. Period homes tend to fetch better prices and are in much higher demand than other property types.

Easy access to employment opportunities It is important to have easy access to a diverse range of employment opportunities near your property.  This will attract reliable tenants/investors to the area and offers better growth potential over the long term.

Look for areas with solid or expanding infrastructure Having good, reliable access to nearby arterial roads, highways and satellite cities will always add more value to a suburb.  Look out for planned developments in the area as well as new infrastructure improvements such as freeways, as this often indicates the area is on the up.

Don’t always go for the cheapest property Focus on what comparable properties are actually selling for in the area to figure out if a property is overpriced, has met the current market or is at under market value.

Focus on the property not the hotspot You are buying a property, not an entire suburb. The key is to identify potential for capital growth and rental returns. If it is well positioned, then the desirability factor increases.

Look for signs of the next “Williamstown or St Kilda” and trust your intuitio Look for a feeling or indicators that a suburb is on the move. Lifestyle features such as being close to the water, bars, restaurants and retail outlets will always add substantial money to your investment.  It is not unusual for unwanted locations to become hotspots over a 10- to 20-year period, so think long term.

With these key factors in mind, here are five potential “hotspots” in Melbourne worth taking a look at:

1. Thornbury

Thornbury has shown an impressive 21% growth per annum over the last 22 years.  Units and flats are still very affordable with an average median price of $432,000.  Located just seven kilometres north-east of the CBD, it has easy access to transport, an attractive lifestyle vibe and is very family friendly. The ripple effect from more expensive suburbs such as Northcote, Fitzroy and Carlton has caused Thornbury to become a more financially viable and affordable alternative. It has all the right features and qualities of a prime suburb, making this an ideal entry-level suburb for first-home buyers and investors.

2. Spotswood/Newport

Positioned just seven kilometres west of Melbourne’s CBD, both Spotswood and Newport have shown steady growth of 14% per annum growth over the last 22 years.  It is one of the few affordable inner-city suburbs left in Melbourne. Apartments and flats are still available well below the $535,000 median. It has very good transport connections to the CBD, with a new multi-line train station, nearby Westgate Freeway, Western Ring Road and City Link arterials. Neighbouring satellite city of Footscray is close by.  You can still find older-style cottages on good- sized blocks, proving popular with first-home buyers and investors.

The ripple effect from wealthier suburbs such as Williamstown and Yarraville has caused both Newport and Spotswood to become future hotspots.

3. Box Hill

The ripple effect from Camberwell and Surrey Hills has put Box Hill in a good affordability category. The median price for units and apartments is still relatively affordable at $467K.   Located 14km east of the CBD, it is a major commercial centre and transport hub.  It has excellent access to Maroondah Highway and is home to the local Box Hill Hospital.  In addition to all the wonderful amenities, it is also a growing satellite city with the local council introducing further relaxed planning controls to help promote and build medium density development.

4. South Yarra

The reason why we have chosen to include the inner “blue-chip” suburb of South Yarra is that prices have fallen considerably.  You can now buy one-bedroom apartments well under its median price of $620,000. This holds great appeal to those seeking an affordable entry in to a highly desirable location. Located just three kilometres south-east of the CBD, you can’t go wrong with the close proximity to trendy Chapel Street and Toorak Road.  Established infrastructure such as The Alfred Hospital and Swinburne University are also nearby.

5. Frankston

Located 41 kilometres south of the CBD, Frankston is slowly becoming a major commercial, retail, educational and transport centre. This satellite city will have the Peninsula Link opening in early 2013.  As a result, you will see travel time cut by up to 40 minutes between Carrum Downs and Safety Beach.  The median price for a home is super affordable at $350,000, and apartments can be purchased at less than  $270,000.  Close to the beach, the future development of a local marina will also add significant value to the area.  The ripple effect from neighbouring Mount Eliza and popular Mornington Peninsula suburbs (Portsea, Sorrento and Flinders) is offering potential buyers a much more affordable option.

In summary, you can still make money in a flat market.  Boom suburbs always happen for clear reasons, and picking one before it becomes popular, is one of the simplest and quickest ways to make money in real estate. In fact, if you remember the following winning formula –purchase at the right price, in the right place and at the right time, you will no doubt reap good financial rewards.

With this in mind, make sure you choose under-performing suburbs and stick to affordable areas under Melbourne’s median price.  Do your due diligence and research thoroughly before you buy.

What other strategies can you use to make money in the current flat property market?

Find distress sales Chase vendors who need to sell quickly due to divorce, finance issues and impending deadlines due to other purchases or commitments.

Buy wholesale, not retail For example: Buy a whole block of flats in a group syndicate and purchase in the $1 million to $6 million price range, as this will reduce your competition.

Add value with subdivisions Buy properties that need to be subdivided.  This will simultaneously increase the properties’ value instantly.

Add value with renovations Buy “ugly ducklings” that need internal and external renovations, as this will add instant value and equity.

The best opportunities for property investors

Thursday, October 04, 2012

The best opportunities for property investors are outside major cities: Terry Ryder

By Terry Ryder
Thursday, 06 September 2012

There are lots of loud voices advocating big cities as the best places for investors to target. 

Indeed, they say, the big cities are the only places to invest. Some even suggest you’re crazy to buy anywhere else. 

These people have one thing in common: they have businesses that benefit if you follow their advice. This is the loudest noise in real estate – the voice of vested interests. 

Apart from the ethical issues of seeking to benefit from giving tainted advice, it’s foolish to have such hardline attitudes. 

Nothing is that black and white in real estate. Situations are always evolving, and the best opportunities at a given point in time can be found in myriad places: a regional city, a seaside town with an important export port, an outer suburb boosted by new transport infrastructure, an inner-city area with an evolving university-hospital precinct.

But, generally speaking, I have no doubt that many of the best opportunities for long-term capital growth with solid yields are found outside the big cities. 

Regional Australia is the most under-rated option for investors. Investor surveys that asked people where they expect to find the best capital growth always rank the regions last, behind popular choices like inner-city suburbs and sea change icons. 

It emphasises how misinformed the average punter is and how little homework they do. These choices contradict all the research evidence. I suspect “research” for most investors consists of absorbing media sound bytes – which means they have their heads crammed with negativity and misinformation. 

To put things in simplistic terms, this is what the research shows: outer suburbs outperform the inner-city, hill change out-does sea change, and the city v. country clash is usually won by country. 

There are plenty of exceptions you could find, but those are the general rules of thumb that emerge from research. 

To compare city and country, let’s look at New South Wales. Sydney property professionals tend to gag at any suggestion of going west of Parramatta to buy real estate. If it’s not the beaches, the inner city or the north shore, you’re a nutter. 

This is despite the miserable capital growth performance of Sydney over the past decade. There are very few suburbs anywhere in Sydney that have managed a long-term average even as low as 6% a year. There are none with double-digit averages. 

Among the so-called “better” areas that have delivered only 3% or 4% a year to property owners are Manly, Balmain, Palm Beach, Vaucluse, Gordon, French’s Forest, Sutherland … it’s a very long list. 

Doing only marginally better, with averages around 5% a year, are places like North Sydney, Leichhardt, Bondi, Randwick and Cronulla. At growth rates like these, you’d be better off leaving your money in the bank. 

Regional NSW, however, is full of cities and towns with double-digit growth rates for the past 10 years. Among them are Muswellbrook, Singleton, Lismore, Casino, Branxton, Greta, Gunnedah and Glen Innes. 

A second-tier list of places with growth rates around 9% to 9.5% includes Goulburn, Wagga Wagga and Murwillumbah, all of them out-performing any Sydney suburb you care to nominate. 

One of the best has been humble Broken Hill, which has averaged 13% per year over the past decade. 

Melbourne overall has been a better performer than Sydney, but the same city v. country pattern applies. If you want a double-digit growth rate long-term, you have to head bush. 

Consider the suburbs of Melbourne’s inner south-east, much beloved by property professionals and local media who see auction activity there as the barometer of all things real estate. Toorak, the standard bearer for everyone who loves pretentious property, has a Sydney-esque growth average of 4.9%. 

Others, like Armadale, Brighton and St Kilda, are a little better, averaging in the 5% to 6% range. 

Some, including Balwyn, Canterbury and Malvern, has touched the intoxicating heights of 8%. 

Compare that to workaday Gippsland towns like Traralgon, Churchill, Maffra and Sale, which have averaged 11-12% over the past 10 years. 

Portland, down in the far south-west, has been chugging along unnoticed (except by city people who love to fish) with a growth average of 10% a year. 

Scattered around the regional areas of Victoria are plenty with double-digit averages: Woodend, Kyneton, Camperdown and Barwon Heads among them. 

I’ve heard it said that regional areas are risky because their economies are based on a single major industry like agriculture or mining. 

For many regional cities, this is untrue. There’s nothing one-dimensional about Orange, Tamworth and Dubbo in NSW, or Ballarat, Bendigo and Warrnambool in Victoria. Their great strength is the diversity of their economic base, along with their affordability.

Terry Ryder

Dangers of investing in property in single industry mining towns

Thursday, October 04, 2012

Moranbah and Port Hedland unsustainable 'single-industry' mining boom hotspots: Westpac

By Larry Schlesinger
Friday, 07 September 2012

Moranbah, the heart of coal mining activity in Queensland's Bowen Basin region, was recently added to a list of WA and Queensland mining towns deemed by Westpac to be risky “single-industry” towns.

This means that investors will find it harder to get loans to purchase investment properties in Moranbah, with the bank deeming the town to have a potentially unsustainable housing market.

Its inclusion comes shortly before RP Data calculations that placed Moranbah top of a list of regional Queensland towns where it is cheaper – by an average of $4,000 – to buy a house than rent.

However, Westpac will now discount rental income listed as security on investor mortgage applications by 40%, taking into account the risk of rising vacancies.

“An application with security in a single industry town will have all rental income assessed at 60%,” says the bank in a note to mortgage brokers.

The new requirement is in addition to the rule that a 30% deposit is required in these postcodes for property to avoid the added burden of lenders mortgage insurance (LMI) – well above the usual 20% deposit requirement.

The policy changes apply to two investment loans – Westpac’s variable rate Equity Access Loan (EAL) and its fixed rate Investment Property Loan (IPL).

Westpac spokesperson Danny Johns told Property Observer recently the decision to add Moranbah and other mining towns to the list is due to concerns that in these locations the mining boom is driving house prices and rental yields to relatively unsustainable levels.

As an example, he says house prices have jumped 44% in Moranbah with yields at 13.5%, with property valuers telling Westpac that these figures are not sustainable.

Other towns added to the list recently include another Queensland coal mining town Dysart in the Isaac region south of Moranbah and Port Hedland and the East Pilbara region.

The full list of new towns included on Westpac’s list of “single-industry” postcodes are in Queensland:

Blackwater (4714)

Moranbah (4744)

Dysart (4745)

Middlemount and May Downs in the Isaac region (4746)

And in Western Australia:

Roebourne (including Karratha, Baynton, Bulgarra and Pegs Creek, 6714)

Port Hedland (including South Hedland, 6721)

East Pilbara (6753)

Real Estate Institute of WA president David Airey says the changes probably reflect a view from within the bank that “housing prices and rental returns in particular, in places like Karratha, Port Hedland, South Hedland and Newman are unsustainable”.

“The state government is anxious to address affordability in the Pilbara, and while this won’t happen overnight it’s clear that housing demands will be better met over the next few years.”

Airey says Westpac has the right to “calibrate its business model as it sees fit”.

“But it would be a pity if the result meant that investors were less inclined to supply much needed housing in the state’s northwest. In some ways it’s a catch-22 situation,” he adds.

Real Estate Institute of Queensland (REIQ) chief executive Anton Kardash says lending criteria for remote areas has been restricted for some time, given these areas are often reliant on single industries for employment.

“Investors in these areas need to be aware that lenders will require a larger deposit dependent on the element of risk lenders attribute to buying property in a specific region.”

Jane Slack-Smith, director at Investors Choice Mortgages, says the change in policies indicate that Westpac is less keen to lend in mining locations.

“The bank is discounting rental income to allow for vacancies,” she tells Property Observer.

Slack-Smith says Westpac is implementing these changes in places like Karratha despite her clients being able to ask rent of $2,000 per week over a five-year lease.

“Some lenders will take 100% of rental income, but Westpac only takes 60% of income.”

“Some lenders don’t have postcode restrictions,” she says.

Three rules of Property Investment

Thursday, October 04, 2012

Three things property investors must do to separate the wheat from the chaff: Terry Ryder

By Terry Ryder
Thursday, 13 September 2012

Confusion is the theme of most questions I get from property consumers. 

People seeking to invest are befuddled by two major factors: conflicting advice and media misinformation. 

The greatest area of confusion relates to where they should buy. Capital cities v. regional centres. Hill change v. sea change. Inner city v. outer suburbs. The lure of high returns and capital growth in mining towns, against of a chorus of “the mining boom is over” media sound bites. 

What do you believe? Or, more to the point, who do you believe? 

Wannabe investors have an unerring ability to accept advice from all the wrong places, including family members, friends with strong opinions, professionals who aren’t property specialists and advisers with vested interests in pushing them in a particular direction. 

Here’s my three-step process for sorting through the static and finding some wheat among the chaff. 

  1. Stop reading newspapers
  2. Challenge advisers
  3. Do your homework 

People usually think I’m joking which I tell them that Rule #1 for successful property investment is to stop reading newspapers. I’m deadly serious. 

Newspapers contribute nothing to the process of information gathering for property investors. They just fill people’s heads with misinformation and negativity. They’re a core reason why consumer confidence is so low in Australia. 

Despite everything people know about the pessimism and beat-up tendencies of newspapers, they still tend to take what they read as fact. They absorb headlines and five-second grabs on television and it becomes part of what they think is true. 

When it comes to information about real estate, newspapers are deadly. Most of the real estate content of metropolitan papers is written by people with no credentials. Much of it comes from a press release re-write, so propaganda is recycled as fact. And the recycling process is handled by non-experts. 

This week’s data on home loans is an example. The reality depicted in the ABS figures is that the number of home loans approved this year has generally been higher than last year. The latest month for which data is available, July, showed a 2% improvement over July last year. 

That’s been the trend all year: moderate improvement over 2011. 

But newspapers across Australia reported it as a decline (July was marginally lower than June), with comment that the figures were evidence of market weakness. Several articles featured the word “crisis” prominently. 

Why did they report it that way? Because the builder lobby groups, such as Master Builders Australia and the Housing Industry Association, pumped out their usual pessimistic press releases, and most newspapers ran with that. Journalists will always be attracted to a negative angle, no questions asked. 

If you’re serious about investing, you need to stop reading this rubbish. The internet, which has many specialist websites with quality information (yes, including mine, so feel free to challenge me), should be the primary tool for people seeking real estate education. Newspapers, increasingly, are redundant. 

Rule #2 is to challenge anyone presenting himself/herself as an adviser. Firstly, do they have any credentials to speak on real estate? I find many people confuse celebrity with expertise. The assumption is that if someone’s appeared on TV she/he must be an expert. Often, they’re not. 

Advisers also need to be grilled about their vested interest in the advice they’re giving. Many professionals, including accountants and financial advisers, are receiving big kickbacks from developers for steering their clients towards off-the-plan apartments. 

Whenever an adviser suggests investment in a particular market sector, consumers need to dispute that too. Quite simply, ask for evidence. Ask them what research they have to show that this is the best place to buy. If they can’t produce any, get another adviser. (As I said earlier, feel free to challenge me on my views.) 

One of the great furphies is that you must invest in “prime” real estate. Prime is usually defined as the inner-city suburbs. Anyone with the gift of the gab can mount an apparently plausible argument for the supremacy of the “quality” suburbs. 

That’s until you look at the figures. Most of the elite suburbs of our major cities have miserable records on capital growth. They’re highly volatile markets that seldom make money for investors. 

This is something I’ve research repeatedly over the years. With rare exceptions, the cheaper areas outperform the expensive ones on long-term capital growth. 

The recently reported sale of a Sydney mansion in Vaucluse is one of many examples. The “Hollywood-style” mansion sold for a reported $11.75 million. The vendor had paid $8.5 million in 2002 and, at face value, it looks like they made a few million. But the capital growth was an average annual rate of just 3.14%. 

That’s a similar outcome to my research into re-sales of homes in Wolseley Road, Point Piper, regarded by some as the most prestigious address in Sydney. The average capital growth rate was 3% a year, among the worst in the nation. 

Next time someone recommends one of these “prime” locations, challenge them. Ask for evidence to support the claim that “quality” property out-performs. The figures will show the opposite. 

At the end of the day, it all comes down to Rule #3: investors have to do their own research. Anyone who goes into the expensive business of property investment based on someone else’s advice, without doing any personal legwork, deserves the poor result that so many people get.

Terry Ryder

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