Blogs - Lindeman Reports

Posted on January 25, 2021January 25, 2021 by John Lindeman

The three little pigs

The story of the three little pigs and their experience with property provides investors with valuable insights into how property booms occur and why they end.

Each of the three little pigs chose a different strategy, one building a house from straw, another from sticks and the third from bricks, but in the end, only the brick house was able to withstand the big bad wolf’s huffing and puffing.

Their experience closely resembles the three types of housing market booms, which are those created by investors, opportunity led booms, or those driven by genuine demand for more housing.

Investor booms are like houses built of straw

Like houses built from straw, investor created booms grow quickly, because investors don’t live in the properties they buy or sell. Their only motive is profit, so price growth can be speedy and spectacular, but is also often speculative.

The boom continues as long as the number of investors wanting to buy is greater than those trying to sell.

When the number of investors deciding to take their profit and sell begins to outnumber those wanting to buy, the growth quickly ends. As disappointment turns to dismay the remaining owners may all try to sell at the same time and prices can often crash, just like houses made of straw.

Opportunity booms are like houses made from sticks

Opportunity led booms can occur whenever housing finance becomes cheaper or easier to obtain, giving potential buyers more borrowing capacity.

At such times, renters take the opportunity to buy their first home, and existing home owners decide to upgrade, with the rise in buyer demand causing prices to grow.

Such opportunity led booms continue until new affordability limits are reached and buyer demand slows down. But sometimes they can start to fall apart, like houses made from sticks. This occurs if unemployment grows, or interest rates rise because some recent buyers may decide to sell while others are forced to and prices come down again.

Population led booms are like houses built of bricks

The third type of property market boom occurs when the number of people wanting to live in a suburb or city suddenly rises and housing shortages occur. The cause could be high numbers of overseas or interstate migrants, or a local transport project such as a new or improved road or rail project which makes an area safer, quicker and easier to access and more attractive to live in.

This last type of property market boom takes time to build momentum, as migrants usually need to rent for several years before they can buy a home, while transport infrastructure projects also take years to finish. However, it is the only boom where demand is driven by something as solid as a brick house – more people.

What type of property market boom will occur next?

Population driven booms produce far more reliable results for investors than opportunity led or investor created booms, and there is every reason to believe that when our international borders are opened again, a population driven boom will start.

We will receive a huge influx of migrants seeking an escape from the pandemic ravaged cities of Europe, Asia, Africa and the Americas. To predict what this huge rise in population may do to our housing markets, we have only to look back to previous times after our international borders were reopened after years of closure.

This is not the first time our borders have been closed.

We have experienced international border closures before – during the First and Second World Wars, because overseas travel was dangerous and migration came to a standstill for several years. When our borders were thrown open in 1919 and again in 1946 we experienced our highest population growth ever, as thousands of immigrants and refugees fled war torn countries to make a new start in Australia.

As the graphs show, this huge rise in housing demand caused housing prices to boom in just a few years.

Housing prices doubled and even trebled in the years after our borders were opened, and the similarities to our current situation are striking. Our international borders are once again closed and huge numbers of potential immigrants are lining up, waiting to start a new life in a land that has weathered the COVID-19 storm much better than most.

How investors can secure the greatest benefits from the next boom

We can benefit from the forthcoming population driven boom by purchasing investment properties just before the borders reopen in areas where overseas arrivals are most likely to settle. These areas will experience high rental demand and as housing shortages develop and intensify, prices will rise as well.

In short, these areas will provide investors with the same security as the third little pig enjoyed when he built his house with solid and reliable bricks.

Sources:
Housing Australia, a Statistical Overview, ABS 1991, 1996, Australian Bureau of Statistics
Australian Demographic Statistics, 3101.0 Australian Bureau of Statistics.
Stapledon’s Index, Stapledon Nigel, Long Term Housing Prices in Australia

Posted on January 5, 2021January 5, 2021 by John Lindeman

How to avoid analysis paralysis

With so much data available to property market investors, it’s no wonder that the more we dive into the numbers, the greater our confusion can become. John Lindeman explains which stats can help you make informed decisions and which you can safely ignore.

We often see blogs, podcasts and free reports claiming to reveal the next hot spots or areas about to boom when all they do is offer a list of last year’s best performers.

Their authors assure you that suburbs with a long history of strong capital growth have the best potential because their consistent performance is likely to continue.

At the same time, others will tell you the exact opposite, insisting that buying in areas with long histories of little or no growth makes better sense, because they’re next in line and even overdue for good growth.

Past performance does not predict future performance

It’s no wonder that investors get confused, when past performance stats are used by experts to give you two totally different predictions. Not only do they contradict each other, but they also don’t make sense. Just because a suburb has experienced high past price growth, doesn’t mean it will keep going. In fact, it is very likely that prices will soon be, or have already been pushed up to the point where buyers must start looking elsewhere and the growth is about to end.

But, neither does this mean that those suburbs with long histories of below average growth are lining up in the boom queue. They may have massive stock overhangs, depressed local economies or falling populations with further price declines ahead.

The housing market puzzle has two pieces

Past performance doesn’t help us to make accurate predictions because the housing market is a puzzle which has two pieces – supply and demand. Looking at the past only reveals part of the picture, and we need to look forward as well.

Housing supply is all about properties. We measure supply in any area by the number of houses, units, townhouses, duplexes and apartments that are on the market from new property developments plus those listed for sale or available to rent compared to past sales and rentals.

Housing demand, on the other hand, is all about people. It’s the number of renters, first home buyers, upgraders or downsizers about to move into an area compared to the number of renters, first home buyers, upgraders or downsizers who are planning to move out. From this you can see while supply looks backwards, demand looks forwards.

By comparing the current supply of properties in any area to the expected demand for them, we can obtain a clear and complete picture of the state of the property market in that area. We can then make accurate forecasts about potential price and rent changes.

Analysts who only rely on past performance data such as sales and prices to predict the future are trying to solve the puzzle with only a small piece of the total picture and that’s why their forecasts so often turn out to be wrong.

Property market predictions you can trust

Leading property market expert, John Lindeman invented Australia’s only patented Housing Market Prediction Solution, which is a database that ensures investors can avoid the perils of analysis paralysis and make the best possible buy, hold or sell decisions.

This massive data storehouse gathers real time housing market performance data for properties in every suburb.

The patented Housing Market Prediction Solution merges this supply data with highly accurate demand algorithms estimating population growth and movement trends plus forecast buying or renting intentions down to suburb level.

The solution then produces highly accurate property market predictions to identify suburbs with the best growth and cash flow potential, which we reveal in our predictive reports and share with the students of our educational programs.

Past performance you can rely on

Since they were developed by John Lindeman the algorithms employed in the patented Housing Market Prediction Solution have produced a consistent past predictive accuracy rate of over ninety per cent in terms of forecasting both the direction and intensity of price and rent changes for houses and units in Australia’s 15,000 suburbs and towns.

Posted on December 11, 2020December 11, 2020 by John Lindeman

Which is best – to buy or rentvest?

Which is better - to buy or rentvest?

With the cost of housing finance at record lows, banks willing to lend and our governments providing incentives, it’s no wonder that first time buyers are rushing into the property market. But which is better – buying your own home or starting out with an investment property?

The main issue with buying your first home is that it often becomes a balancing act between where you can afford to buy and where you want to live. You may wish to buy a home in a familiar area close to schools and good transport services, or near a shopping centre and recreation facilities, only to find that homes where you want to live are priced out of your reach.

Your first home purchase is usually a compromise between where you want to live and what you can afford. This is why so many first home buyers sell after a few years and then move to a more suitable home in a better location as soon as their situation improves.

How to have the best of both worlds

You can easily resolve this dilemma by renting where you want to live and buying an investment property where the market offers high rental yields and high price growth potential.

This strategy is called rentvesting, and it’s becoming increasingly popular because it gives you the flexibility to live where you want for lifestyle, while it also puts you in a much better financial position than if you bought a home.

There are several reasons for this:

You can claim all the rates, insurance, maintenance, repairs and even interest repayments of an investment property against your other income.
You receive tax benefits, depreciation and of course, rental income.
The property should be cash flow positive, making you money from day one.
The price growth potential should be much higher than if you had bought a home.

Knowing where you want to live is a “heart” decision – it’s based purely on your personal preferences, but knowing where to buy an investment property is a “head” decision. You won’t be living in it, so your preference doesn’t matter.

What does matter is that rental demand for your investment is high now, and that buyer demand will be high when it’s time to sell. This will give you strong, regular cash flow from day one and high price growth over time.

In principle, the choice is clear. It’s much better to rent where you want to live, and buy where you want to invest.

Posted on November 12, 2020November 12, 2020 by John Lindeman

The wolves have returned

Whenever confidence returns to our property markets, the wolves in sheep’s clothing come back as well, ready to trap unsuspecting investors.

With many parts of the property market rebounding from their pandemic induced downturns, the wolves have returned, cleverly disguising themselves with incredibly attractive schemes that promise to make you wealthy from property investment.

They shower you with free guides, booklets and toolkits, promoting their fail proof success schemes.

They run free training, intensives, hybrid and virtual livestream events designed to showcase and share their wealth creation secrets from property investing.

Their wealth creation promises are impressive

Their investment schemes may only require a low initial outlay from you but offer high cash flow and wealth from their innovative strategies. Talking up the prospects of the opportunities they have unearthed, they’ll provide you with assurances of rewards, impressive growth forecasts and even some success stories from clients who really cleaned up.

Their motives may at first appear honest and even honourable, so why do I call them wolves in sheep’s clothing?

They are not at all what they appear to be

Their aim is not to show you where and how to get the best results from property investing, but to convince you to invest in property related schemes or projects from which they will receive substantial financial rewards. In other words, they have their own best interests in mind rather than yours.

There is nothing wrong with paying for the sound assistance you may receive from buyers agents, mentors, property strategists or other experts, but there is everything wrong with the wolves who pretend to be working in your best interests, but really have only their own financial welfare in mind.

How to unmask these well disguised wolves

They often won’t reveal the actual details of their get rich plans unless you register for and attend their on-line or in-house training sessions, consultations and workshops. This is because their wealth creation strategies usually require high pressure sales tactics to convince you that they work.

Once they have your complete attention, they’ll try to sign you up to courses, workshops or training programs for schemes such as passive development, rent to buy, land banking, options, even co-living investments or sub-letting rooms.

The wolves talk down the very real financial and legal risks of such strategies while talking up the benefits, but remember if it sounds too good to be true it usually is.

You can easily unmask such wolves in sheep’s clothing by Googling them. Some of them don’t have websites, but operate purely out of social media platforms.

You may even discover that they have been investigated by ASIC or the Department of Fair Trade.

Property discussion forums will also reveal whether the experiences of their past clients have been good, bad or even shocking.

Of course, not everyone is perfect, but by testing their claims of accuracy, reliability and credibility you’ll quickly be able to sniff out those wolves in sheep’s clothing.

Posted on November 12, 2020November 12, 2020 by John Lindeman

Putting your eggs in one basket

Investors usually diversify their properties to minimise exposure to risk. But if we know exactly where and what properties to buy in order to secure the most profitable outcomes, we can safely put all our eggs in one basket.

Many advisers say that putting all our eggs in one basket is a high risk strategy. They often recommend that we should diversify our properties to minimise our risk.

Their logic is that if the performance of one property falters, good performance in the rest will still give us an acceptable overall result.

While diversifying our properties may seem to make good sense, the question then arises – how should we diversify? Some strategists recommend that we should spread our properties across several States, so that if the market slows down in one State, it may still perform well in the others.

Other advisors tell us to diversify with a mix of different property types in our portfolio, such as houses, townhouses, duplexes and units so that if demand falls for one type of property it could rise for the others.

A few theorists may even suggest that we should combine these strategies by purchasing different types of properties in different States, believing that the more our properties are mixed by type and location, the lower the risk becomes.

These sorts of diversification strategies rely more on good luck than on sound research and they can still leave all our properties at risk. More to the point, such random diversification is completely unnecessary right now, because we are at one of those rare moments in history when areas with the best potential can be easily identified.

There’s no point in diversifying if we know where to buy

With international borders closed, our governments are being forced to take dramatic and very specific initiatives to kickstart the economy back into growth.

In particular, government stimulus programs are focused on accelerating transport infrastructure projects right around Australia, from the Bruce Highway expansion in Queensland to new Metronet train lines in Perth.

These projects have the capacity to deliver the perfect trifecta for property investors – low risk, high cash flow from day one and market driven price growth into the future.

They are low risk, because they’re recession proof government funded projects which will go ahead no matter how the economy performs.

They are high cash flow, because these projects require large numbers of construction workers to rent locally while the projects are underway.

They cause price growth on completion, as they will make areas easier, quicker and safer to access.

We recently saw this with the Pacific Highway duplication from Newcastle to the Queensland border. A massive project with over one thousand kilometres of dual carriageways, tunnels and overpasses, jointly funded by the Federal and State Governments.

As the construction work progressed, a shortage of accommodation for the workers and their families sent rents skyrocketing in towns such as Taree, Port Macquarie, Kempsey, Maclean and Ballina.

This was followed by price booms in the same towns when tourists, holidaymakers, retirees and discretionary buyers discovered that they were now much quicker, easier and safer to access.

We are highly likely to see the same results again with new government funded, shovel ready transport infrastructure projects in locations where the construction workers are likely to rent locally. It only remains for you to do a little research on the potential for rents to rise during the construction phase and for buyer demand to surge when the work is completed.

Right now, putting your property investment eggs in such a government guaranteed basket could offer the lowest risk of all.

Posted on October 27, 2020October 27, 2020 by John Lindeman

Lindeman looks at the supply side

With so much media attention centred on housing demand and prices, John Lindeman takes a look at the supply side to see what the post pandemic market holds for property developers.

Developers are often blamed for building unsightly, even unsafe high density apartments and encouraging speculative investment, yet housing development has been the means by which our cities and towns have grown and been rejuvenated.

Many of our towns and cities were initially founded on harbours, rivers and bays which offered easy transport for both people and goods. As our cities grew so did the docks, railways, power stations and abattoirs hugging waterside areas. Much of the potentially most attractive parts of major cities became heavily polluted industrial heartlands and residential no-go zones.

But look around these areas today and you’ll see a fundamental change reaching fulfilment almost everywhere as the last decaying and derelict wharf, warehouse and factory precincts are transformed into exciting, vibrant suburbs with new dwellings located right on the city’s doorstep. This is the supply side of our housing market operating at its best.

Oversupply is usually caused by a fall in demand

Despite this, developers cop a great deal of bad press, with an excess of new housing stock, called ‘oversupply’ or “overdevelopment” being blamed for price falls and high rental vacancy rates.

It is far more common, however, for price crashes to be caused by sudden falls in housing demand than by overdevelopment.

For example, it would be unfair to blame urban developers for the high number of empty units in the CBDs of our biggest cities, or for the rapidly falling rents being experienced by their owners. The cause was clearly the COVID-19 pandemic, which led to border closures and a near total collapse of housing demand from short term renters, international students and overseas arrivals.

When our borders are reopened, the numbers of students, tourists and migrants arriving here are likely to be even higher than in the years before the outbreak of the pandemic. History shows that the only times we have previously experienced such border shutdowns were during World War I and World War II, and as the graph demonstrates, our population rose by record levels after each of these conflicts ended.

The green arrows point to those years when our population rose rapidly as migrants and refugees sought a new life far away from war torn Europe. There is every reason to believe that the same influx will occur when our international borders reopen, enabling thousands of people to escape covid ravaged and disaster ridden countries.

Any current oversupplies will be temporary

Once the borders are open again any current surplus in the supply of housing will quickly disappear, and the demand for more housing will be acute. The reason for this is simple – every overseas arrival needs a place to live. The issue is likely to be that there will not be sufficient properties to meet the demand, especially in areas where overseas arrivals initially settle.

Property development ties up huge amounts of capital, so developers tend to avoid taking risks by selecting areas that have already experienced strong recent buyer demand, rather than locations which may have the potential for future demand, but have not shown any evidence of this recently.

The development time lag can take years

This cautious approach can result in a “development time lag” of several years before rising housing demand is met by developers. To meet growing buyer demand developers will pre sell units off the plan before they actually start building them. This has little impact as long as housing demand in any locality remains constant or is rising. but when buyer demand suddenly slows down or stops it has a huge effect.

In such situations an oversupply can quickly occur. This leads to price falls, and creates immense problems for those who have purchased uncompleted units off the plan, or in some cases, when construction has not even started.

Even though some of these buyers may only have paid a small deposit bond, they are obliged to pay the agreed contract sale price at settlement, by which time the actual market value of the unit may have fallen well below the sale price.

The graph shows how this played out in the Gold Coast high rise unit market before and after the Global Financial Crisis (GFC). Speculative buyer demand (shown by the red line) escalated rapidly from 2004 onwards, with many of the buyers being overseas investors, encouraged to buy units with low deposit bonds and attractive rental guarantees at free seminars and promotional events.

Motivated by rising buyer demand, developers gained approvals to build large numbers of high rise unit projects which they sold off the plan, well before any construction work had actually started. Buyer demand rose relentlessly until the onset of the Global Financial Crisis (GFC) caused it to almost totally collapse in 2008. But the number of new units (shown by the gold line) continued to rise after the GFC as projects were completed, leaving the Gold Coast unit market with a massive oversupply.

From 2009 onwards, rents started falling and investor owners were left with vacant apartments and no rental income. Many owners were forced to sell at a loss as unit prices plunged by up to forty per cent over the next few years.

Demand for units rose again after the opening of the G-Link light rail (shown above) from 2014 and in the lead up to the 2018 Commonwealth Games, but a much more cautious developer sector is only just responding to meet buyer demand on the Gold Coast.

This example shows us how it can take many years for markets to recover from oversupplies and even longer before developers are bold enough to re-enter such a market even after another shortage becomes evident.

Another property boom will soon be on its way

The current situation in the inner urban unit markets of our biggest capital cities is very similar to what took place on the Gold Coast, with the pandemic replacing the GFC as the cause of the collapse in demand.

Once the international borders are open our population growth will be boosted by huge numbers of overseas arrivals and demand for housing will escalate, but because of the development time lag, it will take years before sufficient properties are available on the market to meet the demand.

In short, we are likely to experience a repeat of the huge housing shortages that followed the last two world wars, when rents shot up and prices doubled within a few short years. Although this next housing market boom will eventual ripple through all our major city markets, the initial growth areas could be the very same areas that are now suffering from rent and price falls.

Warren Buffett famously said “Be fearful when others are greedy and greedy when others are fearful.” – for developers, that time will here very soon.

Posted on October 13, 2020October 13, 2020 by John Lindeman

More spin than win

Some experts are calling the new simplified lending rules a huge economic game changer which will deliver benefits for everyone, but John Lindeman believes they could be more spin than win.

It sounds fantastic in theory – a debt led recovery, with relaxed lending restrictions freeing up huge amounts of credit and supercharging our economy back into growth.

In practice, however, the change from “responsible lending” to “responsible borrowing” won’t encourage banks and other finance providers to throw open their vaults, nor do they give us any incentive to race out and apply for more credit.

People don’t borrow more to get out of trouble, they spend less

Unless there is a bright light at the end of the debt tunnel, people faced with financial hardship tend to tighten their purse strings and spend less, not borrow to spend more. Here’s a graphic example of how this works.

In a recent estimates hearing, the head of the National Bushfire Relief Agency, Andrew Colvin stated that only five (5) applications for concessional loans had been approved to bushfire affected small businesses.

These added up to a loan total of $400,000, just 0.02% of the $2 Billion allocated by the government for bushfire relief.

The government’s notion that people would borrow to get out of trouble was badly misjudged. Many business owners simply decided that increasing their levels of debt would make it harder for them to recover, not easier.

So, the assumption that people will race out and apply for housing finance, personal loans, increase their credit card limits or take out payday loans as a pathway to financial recovery is flawed, as it is the very last thing most people will actually decide to do.

But. even if some of us have such plans, there’s a much bigger obstacle. Even before we apply for a loan, finance providers already know our debt capacity and ability to make repayments.

The finance providers know all about us anyway

Over the past few years, the government has been quietly implementing what they call Comprehensive Credit Reporting (CCR), which requires finance providers to report our credit history and repayment performance back to credit bureaus so that they can share this information with other lenders.

Previously, credit bureaus only listed application busting information such as defaults and bankruptcies on your credit report.

Under CCR your report shows all your past credit applications, amounts applied for, loans declined and approved credit limits.

Plus, CCR exposes your repayment history, which must be provided by lenders to credit bureaus, along with default agreements and any deferrals you have applied for, such as those under current repayment moratoriums.

These new reporting rules mean that finance providers will know much more about you than your credit rating when you apply for your next mortgage, personal loan, credit card or payday loan – your CCR lays bare your current debt position, your repayment history and your capacity to repay any further loans.

So, finance providers don’t have to take your word about how little you spend on Uber Eats, Netflix, or your capacity to repay more debt. No matter what you assure them in your loan applications, they already know everything they need to approve or deny you further finance.

Put simply, finance providers won’t be lending more but they will be lending more carefully. That’s why any suggestions that these new simplified lending rules will lead to a debt driven recovery are more spin than win.

Posted on September 23, 2020September 23, 2020 by John Lindeman

The elephant in the property market

John Lindeman reveals an elephant that’s about to make its presence felt in the property market and he explains why it’s a huge potential game changer.

It won’t be deterred by rising unemployment, housing finance restrictions, buyer confidence or economic downturns.

It has the power to radically alter housing prices and rents, and it’s about to be unleashed on our property markets. What is this elephant in the property market and where will it reveal itself?

The elephant is the massive movement of people from one State or Territory to another that will result in large changes to our property markets.

The biggest changes to property markets are made when people move

People change housing demand and supply when they move, because we all need a place to live. When enough people move, they can dramatically alter housing prices and rents in the process.

Before our internal borders were closed, around three percent of our population moved from one State or Territory to another each year. Right now, hundreds of thousands of people are waiting for the borders to reopen so that they can do the same.

As this graph shows, the numbers of people relocating within Australia from one State to another each year has been more than double our total population growth, leading to far more significant changes in housing markets than growth causes.

This graph clearly demonstrates that before the pandemic there were twice as many people moving as there were new residents arriving or being born here, but there’s much more to it – these relocators pack a double whammy. Not only does every moving household increase demand by needing a new home where they move to, they leave an empty one behind, increasing housing supply where they move from.

That’s hundreds of thousands of properties changing tenants or owners each year as people move from one State to another. It’s like a huge elephant making its presence felt wherever it decides to move around.

With such massive numbers of people moving, why is this phenomenon going unnoticed? It’s partly because the current border closures have stopped interstate movers in their tracks.

The elephant is hidden from our view

Yet, even when our State borders reopen, the potential effect of these relocations is still likely to go unnoticed. This is because many statisticians and economists quote and rely on net interstate migration numbers, not the total number arriving or leaving.

Net interstate migration numbers leave us with a distorted view of what’s actually been going on. For example Canberra’s net interstate migration last year was zero, but what this hides is that 22,000 residents left the ACT, and another 22,000 new residents arrived.

The graph shows that around ten percent of Canberra’s population move in or out of the ACT annually.

The “zero” net interstate migration figure for Canberra completely hides the highly significant fact that so many people do move, and the effect that they have on the city’s housing market.

Net interstate migration hides changes in housing needs and preferences

Why is this important? Because the people arriving very often have different housing needs from those leaving. Most of Canberra’s arrivals are young professionals seeking work in the public service and creating demand for unit rentals, while many of those leaving are older residents retiring at the end of their careers and selling fully owned family houses.

In fact, many of the otherwise unexplainable ways that housing markets perform become crystal clear when total interstate migration figures are taken into account.

What will happen when the State borders re-open?

Interstate migration has come to a temporary halt with the State borders closed, but is sure to start again when they reopen. There will also be a huge backlog of people who have been anxiously waiting to move, and a large number who have simply decided that it’s time to relocate for other reasons.

Looking at net interstate numbers doesn’t reveal the total numbers of people moving, but it does show the net effect on State and Territory populations.

The graph demonstrates that last year’s interstate migration winners were Queensland and Victoria, while the losers were South Australia, the Northern Territory, Western Australia and New South Wales.

The critical fact is that there are many different types of people moving, and their housing needs are varied. Last year, younger people left Perth, Adelaide and Tasmania in search of employment, education and lifestyle opportunities.

Young couples and families left Sydney in search of more affordable housing in Melbourne and Brisbane, while older people moved from Sydney and Melbourne to downsize in retirement havens and coastal resorts in Tasmania and Queensland.

Most of this movement is hidden from view when we use the net interstate migration figures. For example, the following graphs show the total number of people moving in or out of each State and Territory last year.

You can see that 120,000 people left New South Wales last year for other States, but another 100,000 arrived from those areas, leaving the State with a net loss of 20,000 to other States. The point is that the many of the people who left were older people looking to downsize or young families wanting to buy their first home in a more affordable city, while many of the arrivals were young renters from other cities.

The total effect of these moves is hidden by the relatively small net interstate migration outcome, but what is far more important is what will happen when the State borders reopen.

The big property market winners and losers will be different

Large numbers of people will start to move again when the borders are open, and there are likely to be even more of them than before, because of the backlog that has built up this year. Their destinations will also be different, because some cities have become more attractive while others have been tarnished with a COVID-19 stigma that may take some time to dissipate.

More opportunity seekers leaving the western and central States and Territories will be attracted to South-east Queensland, and Brisbane in particular is about to receive large numbers of young renters when the borders reopen. Watch for a dramatic rise in rental demand in areas they move to, especially inner urban unit markets.

Young couples and families will again leave Sydney in search of more affordable housing, and are likely to head for first home buyer areas in Brisbane and the Sunshine Coast. This means that prices in the newer outer suburban areas of these cities are likely to rise, especially first home buyer locations, which is good news for Brisbane property investors, who have been waiting a long time for growth to return.

Potential retirees will also be on the move again from southern cities and both Tasmania and South-east Queensland will be the beneficiaries, with demand rising in coastal towns and retiree destinations, especially for low maintenance, easy access and secure dwellings which are retiree ready.

Get in before the booms start again

This is not to say that all relocators will choose the same destinations, and other housing markets will benefit from increased renter and buyer demand, but by investing in areas that are likely benefit most from interstate migration we will get a strong head start on the price growth and rental demand to follow.

This is because these interstate movements will begin well before our international borders reopen.

The areas that will benefit are likely to be the same as those favoured by overseas arrivals, when they start arriving later next year, pushing them into strong growth.

This graph provides a picture of how net interstate migrations could pan out once borders are open again, with Queensland and in particular Brisbane and the Sunshine Coast being the big winners.

Sources:
CoreLogic publishing housing price data
Australian Demographic Statistics, ABS, 3101.0

Posted on September 14, 2020September 14, 2020 by John Lindeman

The emerging relocation trend

Many people are becoming increasingly dismayed and disillusioned with the impact that the pandemic is having on their personal, social and financial circumstances.

While some are looking for any opportunities that the new normal is presenting, others are taking action – they’re moving.

More and more people are making plans to move as soon as they can. While some of them may rethink their plans when things are relatively back to normal, others will definitely relocate.

The latest property data indicates that several relocation trends are already emerging, with professionals upgrading, retirees downsizing, couples and families relocating. This is not something new, as people have always moved in search of better opportunities.

We have experienced such relocation trends before

Most of us have parents or other forebears who were born overseas. Although some people have come here to escape persecution and discrimination many arrived in the hope of finding better opportunities for themselves and their children.

In fact, before our borders were closed, over sixty percent of our new residents regularly came from other countries.

But while our relocations are not novel, what is currently driving people to make such moves certainly is, and this is setting in train a new wave of moves which are likely to grow in number as the economic downturn worsens next year.

Perhaps the closest parallel we can find to this situation is what took place during the Great Depression, when our population trends underwent two massive changes.

In response to the economic crisis, our borders were closed to new overseas arrivals. As most of these migrants preferred living in our biggest cities, housing demand in Sydney and Melbourne fell.
Many existing residents moved or were driven from our major cities to regional and rural areas, seeking work, affordable housing and an escape from depressed urban environments. This caused a rise in housing demand in those areas.

The drift to regional and rural areas was driven by massive changes in the economy and social order which the Great Depression created. Unemployment numbers rapidly rose during the early 1930’s but even those with jobs had their wages cut. Many lost their homes and found it impossible to make ends meet. It was also a time of social unrest, especially in the big cities where right and left extremists held protest rallies and urged people to reject a system which had failed them.

Australia’s rural areas offered people an opportunity to escape from the turmoil. Single men took to the road, becoming swaggies who tramped from town to town seeking whatever work was available.

Needy families found cheap food and accommodation in country towns, growing their own food and making do with whatever nature could provide.

The graph shows how the average price of a country house compared to a similar city house has changed over time. During years of large scale immigration and economic prosperity, city house prices have risen more than those in country areas. At one of these periods (during the early fifties), the value of a country house was only half that of a comparable city dwelling.

The graph shows that this trend was dramatically reversed during the Great Depression, when city house prices fell more in value than country ones, some of which actually rose.

By 1940, (green arrow) the price of an average country house was fifteen per cent more than that of a similar city house, something which has never occurred before or since.

Could this happen again? All it would need is the same two coinciding population trends, which are a massive reduction in overseas arrivals and a significant shift away from city living to regional and rural areas. We are now witnessing the emergence of both of these trends.

This is the emergence of a new relocation trend

Not only have the numbers of overseas tourist, student and migrant arrivals collapsed, leaving our inner urban rental markets in a state of disarray, but many existing residents are deserting them because they were never designed to cope with the new social distancing requirements and the attractions of urban living have dissipated.

Some inner urban locations could even be in danger of becoming virtual tomb towns. Not only has their attractiveness for future tourists, students and recent arrivals diminished, but the numbers of such new arrivals are likely to be far lower in the foreseeable future.

This trend will continue and strengthen as the economic impact of the pandemic develops over coming months.

Such a dramatic shift in housing demand could even lead to housing booms in locations less unaffected by the pandemic and its social and economic fallout, where people will hope to discover opportunities for exercise, entertainment, employment and a better lifestyle, free from the threat of restrictions on movement, assembly and travel.

While the causes of our current situation are very different from those that led to the Great Depression, the social effects could turn out to be very similar. In coming months and years, we may witness a complete reversal of the trend to live in densely populated urban areas.

As increasing numbers of people discover the benefits and attractions of living in clean, green regional areas and in States that have been less impacted by the pandemic we are likely to see housing prices in the most sought after regional and rural areas rising strongly in comparison to those of the big cities, at least for the next few years.

Posted on August 26, 2020September 23, 2020 by John Lindeman

The property investment puzzle solved

In the current air of uncertainty, we know that some localities should be avoided, while most others will still deliver rental income and price growth over time. The best results, however, will only be secured by investors who know which suburbs will deliver the strongest cash flow or highest imminent growth.

The issue for investors is that the housing market is like a huge jigsaw puzzle, with more than ten million properties spread over 15,000 suburbs. Although it may seem impossible, with so many properties and suburbs to choose from, success can be achieved by sorting all the suburbs in Australia into groups with similar risks, opportunities and potential.

I have done this for you by creating four groups of suburbs called Cash Cows, Shooting Stars, Sleepers and Long Shots. To estimate the likely performance of any suburb, all you need to know is which group it belongs to.

CASH COWS, SHOOTING STARS, SLEEPERS AND LONG SHOTS

Each group contains all those suburbs which have certain characteristics in common, such as their locations, buy price ranges and types of properties, types of renters and potential buyers.

This not only makes them easy to find, but also reveals the likely results you will receive from each of them as an investor.

This knowledge gives you a much better chance of buying in an area with the best potential to meet your goals. So, what are the opportunities and risks of the suburbs in each of the groups?

SLEEPERS OFFER LOW RISK, BUT AVERAGE PERFORMANCE

Most of our 15,000 suburbs are located in established areas of our capital cities and regional towns. They are the sleepers, where property pices and rents move in tune with the overall ebb and flow of the market. Because there are so many sleepers, they actually “make the market” and it is their rent, price and yield performance that generates the city and regional median house and unit data we read about.

This means that if you invest in a typical property in an established city suburb, you can expect to obtain average performance over time – no better, and no worse.

CASH COWS OFFER HIGH RENTAL YIELD WITH SECURITY

Cash cow suburbs are the holy grail of investors who look for positive cash flow because they provide high rental yield driven by genuine rent demand. Due to recent pandemic induced lockdowns and border closures, however, some of these locations can be highly risky, especially if they rely on rent demand from migrant arrivals, overseas tourists or international students.

You will still find them in areas with large numbers of permanent renters, such as the older, well established but ungentrified ex Housing Commission precincts and also rural towns which have pools of permanent renters whose local ties are too strong to encourage them to leave.

Holiday destinations can provide high rental yields, but the demand is often seasonal, peaking during the summer holiday season, or during the winter months in tropical locations and alpine resort towns. .

Some cash flow locations experience a temporary rise in rental demand when mines are constructed or further developed and during transport infrastructure projects including the building or expansion of railway lines, ports or highways. These rental booms are most common in remote and regional areas where the workers must rent in nearby towns until the project is complete, when the renters leave and the high cash flow often ends.

LONG SHOTS PROMISE HIGH RETURNS BUT WITH HIGH RISKS

The hope of buying in a town or suburb just before it bursts into spectacular growth is something that appeals to us all. It would be like winning the property lottery and indeed the similarity is striking, because only very few people who invest in long shots ever hit the jackpot.

Most of these investments are based on pure speculation about an imminent housing boom, rather than actual evidence. They start with attention grabbing news headlines or trending social media posts about a huge new mining venture, port expansion, railway line or other intrastructure project that has everyone buzzing with excitement, and the fear of missing out.

Because so many of these big ticket projects are delayed, altered, abandoned or don’t even start, the initial boom often ends along with the enthusiasm of speculators who rushed in to buy properties. Their disappointment turns to panic as property prices crash and no one wants to buy. Long shots are strictly for those who can bear the risk of recurring losses in the hope of an occasional huge payoff.

SHOOTING STARS PROVIDE BOTH HIGH RENT AND PRICE GROWTH

Waiting quietly amongst the sleepers, cash cows and long shots are the shooting stars, those suburbs with the potential for buyer or renter demand to rise dramatically, generating high price and rent growth in the process.

Sleeper suburbs can turn into shooting stars with a sudden rise in first home buyers, upgraders, relocators or downsizing retirees. Cash cows boom if a dramatic lift in rental demand sends sends rental yields upwards and investors start competing to buy properties.

Long shots transform into shooting stars when work on a new mine or infrastructure project actually begins and rental demand from construction workers sends rents shooting upwards. Prices often also rise as investors rush in to buy properties.

On completion, some projects such as highway duplications and new railways can cause a second and more sustained boom in buyer demand and prices as nearby areas become safer, easier and quicker to access.

The secret to success is to locate areas where a sudden rise in buyer or renter demand is imminent, and then buying the right type of property just before the growth kicks in.