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Richelle Hunt: Now for the first time it actually seems like if you were lucky enough, that
is, to invest in property that you may be a little bit worried that it's not as safe
as houses, that it could go backwards, that you could buy the wrong investment, that it
may never make you any money and if it does it will take a very long time. So what's going
to happen this year? This time of the year we always ask for predictions, we ask for
that crystal ball to come out and to ask experts in various areas. "What's going to happen?
Where should I take all of my hard-earned cash?" Well Phil Manning is the property adviser
from WBP Property Group. Good morning Phil. Phil Manning: Good morning Richelle, how are
you? Richelle Hunt: Very well thank you, a little
cooler now, slept a little bit. You don't realise how much the heat affects you until
you live through it. Phil Manning: And it's really hard to get
a decent night's sleep and feel refreshed. Richelle Hunt: I discovered yesterday in the
middle of the day that I'd run out of bread and with a 5 month old I was like "I can't
even leave the house to buy bread"! You know, I'm going to have to bake my own bread, but
you know, you survive, first world problem really. I'm sure we'll get through, look I'm
still here. (Phil and Richelle laugh) Now, property is such an interesting area
generally but given the landscape over the last couple of years we've seen interest rates
drop dramatically, we've seen house prices and flat prices rise dramatically, I mean
I never thought I'd see in my lifetime let alone in a decade period where you would see
apartments sell for $700,000 plus yet it happens. Is property still a wise and safe investment?
You know, the old saying "It's as safe as houses, it's as safe as bricks and mortar",
do we need to actually put that saying on hold for a while?
Phil Manning: Well we need to be very careful. We need to be very careful about our selection
of property. Not all property is as safe as houses, so you know the things that have changed
over the last twenty years is that property investing has become far more complicated
than it used to be. It used to be very simple, you could go and buy a family home in a good
location and up it would go, but at the moment, distractions I guess, there are so many options
being offered to people, there's off-the-plan stuff, there's established property, you know,
there's positively geared property, you know, but the reality is if you keep it simple,
if you stick to the old rules, there's still some great investment properties to be had.
Richelle Hunt: 1300 222 774 or you can text 0437 774 774, call 1300 222 774. They are
harder to find, you know, my sister-in-law said to me the other day "Where can I find
a bargain?" and because I'm up feeding all the time, I'm up searching property all the
time, it's my '***' I call it, it's my 'house ***'. I like to just look at houses and I
said "I don't think there are bargains anywhere". Phil Manning: There aren't really, no, there
aren't really. Really what we're looking for in property is less the bargain but more the
property that's going to give the level of capital growth to our clients who are looking
to invest in property. So we're looking for properties that have got a history of capital
growth and are in the sort of locations where we expect that to continue. One of the tips
I give to people who are looking to buy property is to remember the old adage of 'Location,
Location, Location', but I'm asking people to separate what they think that really means
from what I think it should mean, rather than emphasise that it is the only thing to think
about, I like people to think of that as, it's a thing that should remind them to think
about more than one thing other than location. In other words location in the suburb, location
of the street, location in the street and if it's a flat, location in the block. So
rather than just focus on the fact of 'is it in a great suburb?' it really comes down
to a little more than that, so it's got to be in a great location in that suburb etcetera.
So think about more location aspects than just one location.
Richelle Hunt: Yeah that's a good idea. Has it changed in the sense that once you were
advised against buying on a busy road, along a train line, next to a block of flats, are
these things now sort of falling to the wayside? Phil Manning: No, they're more important than
ever Richelle, the final elements of selection are now very important, in fact we look at
about a hundred properties before we find five or six properties that we think are worthy
of, even investigation before recommendation to our clients, we really do knock them off.
I guess we place ourselves, if you can think about it in these senses, if you were the
real estate agent standing on the front door of a flat and saying "Hi Richelle, your number?
How did you go, give you a call on Monday, do you like it? Would you like to make an
offer?" (Owner) "No, we didn't like the fact that it was so close to the shops" or "We
didn't like the fact that the cars in the car parks were just a bit near the bedroom
window". The agent knew that when he first saw the property and he knew that would affect
the outcome. So we look for all those sort of things that are permanent compromises on
the property if you like, so we think people who are investing in property, if they can
find something that really doesn't have any negative then they really ought go to the
market and try and buy that property about for what it's worth rather than try and see
it as a potential bargain. Richelle Hunt: 1300 222 774 or you can text
0437 774 774. I was having this discussion about location and elements that would normally
turn people off, one area that I thought may make people think, well you know look, I will
buy on a main road or along a train line or one of those things that would normally detract
someone because there's other elements that outweigh it; it's in the school zone that
you want for example or it's in an area that you wouldn't otherwise be able to afford and
you have the lifestyle of being close to whatever it is that you may enjoy, say the bay or a
particular park and if it wasn't for that other element, you wouldn't be able to enjoy
the fruits of that suburb. Phil Manning: Yes, and you're talking form
the point of view of buying a property to live in?
Richelle Hunt: Yes. Phil Manning: Ok, well that's a slightly different
approach because you do need to think about the 'other' lifestyle aspects that surround
that property, but for investing we like to buy a property that doesn't have any compromise
so that when our client goes to offer that property for sale in ten, fifteen or twenty
years, there's no excuses. Richelle Hunt: Are people investing, at the
moment, in houses or in apartments? Phil Manning: Both, absolutely. There is some
terrific buying in some houses in some of the inner north suburbs, particularly places
like Pascoe Vale and Coburg but the apartments have always (well not always), but at the
moment they're showing that they will produce the good levels of capital growth in the suburbs
that we like to think are the ones where people should invest; the inner east, the inner south,
the inner north, places within reasonable reach of the CBD and places with good lifestyle
aspects to them. Richelle Hunt: In just a moment I will speak
to you about apartments but let's go to Michael in St Leonard who has a question about housing
ratio. Good morning Michael. Michael (caller): Good morning. In Melbourne
the average house is approximately ten times the average salary and return on investment
properties that I've looked at have been about probably around 3 per cent so where do you
see the future of that going, I can't see a good return for the next five years.
Richelle Hunt: I know, if that. Phil Manning: Well Michael you know, you're
quite right. I think for houses it's very difficult to get more than 3 per cent, for
apartments we used to say 4 per cent but even as recently as this time last year but we've
seen properties being purchased by investors at around 3.25 per cent quite consistently.
Michael (caller): How do you see growth? I don't see any growth in that if it's ten times
the average salary. Phil Manning: Oh you mean growth in the value
of the property? Michael (caller): Yes because that's the only
way you're going to get a return because you know that if it grows in growth you don't
have to worry about your return. Phil Manning: Well that's right, so your capital
growth ought be the key. So I think if you take a very conservative approach to it we
see capital growth for this year being really quite small. Last year was around about 8/8.5
per cent and we're predicting around about 6 per cent for this year for residential property.
Michael (caller): Does it become unaffordable when it gets that high when the growth is
that much? Phil Manning: It is always unaffordable for
some people but property is affordable to a large number of people.
Richelle Hunt: It's interesting to see, I mean I know myself, thanks so much for your
call Michael in St Leonard. 1300 222 774. I remember thinking, probably only five years
ago thinking there's no way I'd see an apartment see for $500,000 in whichever area and now
that can sort of be the norm. Phil Manning: Well early on in my career,
and I'm probably a little bit older than I sound Richelle, but we used to see apartments
selling in Armadale for $25,000. And all along my career we've heard people saying that how
far can it go? Can it get to a hundred, two hundred thousand, you know and we've always
been shocked when those thresholds have been breached but yes, it's an extraordinary story.
Richelle Hunt: This is a good time to let you know that the information provided is
general in nature and shouldn't be considered personal advice. Please seek independent advice
before making any investment decisions. You don't have to look far now around the
CBD and sort of within a 5/7 kilometre radius to see the huge growth in medium to high density
apartments and the change in how these apartments are designed and the style of living that's
designed as a result, so kitchens are almost done away with now, there's just a little
weird tiny strip of a sink and hotplate in your lounge room, bathrooms are tiny little
things, bedrooms have almost become sliding doors.
Phil Manning: And Richelle, car parks are disappearing.
Richelle Hunt: Yeah, which is probably not necessarily a bad thing if it's promoting
cycling and public transport. Phil Manning: Well if it's promoting it then
that's fine but whether or not people will see that as a viable option at the moment.
You know, things have to take a little bit of time to change. So investing in those properties,
we see a little pioneering and I absolutely agree that there will be a need for those
properties but in a way I guess that pioneering aspect is a little bit risky in my view.
Richelle Hunt: What I want to know is how is it affecting the older apartments, the
1960's, 1970's apartments which are actually quite large, big hallways and entrance areas,
they've generally got dining space within the kitchen, so there's actually a separate
kitchen, god forbid some of them even have a laundry.
Phil Manning: Yeah that's right. Richelle Hunt: So are people investing in
those older apartments or are the younger renters actually wanting the modern apartments
that have the pools, the gyms and the no kitchens? Phil Manning: Well look, both those things
apply. Really as the smaller ones become more the norm I think they'll actually make the
older style apartments with the space in the very inner ring of Melbourne suburbs look
even better. I think they're maybe even better options. You know, people are concerned about
how they'll affect the value. I don't think they'll affect the value in a negative sense
at all into the future. The one thing we have seen though and we started to notice this
half way through last year that it's becoming a little bit more difficult to get the rents
for those properties we used to get because some of the new stuff is coming online, and
while the new stuff is shiny, it's all shiny stainless steel and marble and lovely, yeah
if you can pay the same rent for that being in a tower than you would in a little low-rise
in Malvern or something, well you might take the shiny option. In the future for investing
though, for capital growth, we'll always go back to the smaller one, it's not about rent
return, the rent returns will return to the older style properties as the newer ones become
less new and less attractive. Richelle Hunt: That's interesting. 1300 222
774 or you can text on 0437 774 774. Call 1300 222 774 if you have a question for Phil
Manning who is a Property Adviser from WBP Property Group.
New builds, off-the-plan, I mean, is it a risk these days, we're seeing a lot of construction
companies possibly going under, not as much money in those areas. Is it safe to, I mean
I'm not asking you to give specific advice to people, but do you think that buying off-the-plan
will become more or less popular in the next 12 months?
Phil Manning: Well I hope it becomes a little bit less popular Richelle in fact because
what we're seeing are people often being very disappointed with the outcome after they've
waited a couple of years. It's probably safe to say in a general sense that the overall
promise of delivery isn't quite there, we're not certain about the values because when
a person buys an investment property in the marketplace of an established property, they've
got pieces of information available to them that you don't have with a new property such
as 'how has this property performed in the past, what's it actually done, what sort of
rent return is it actually receiving?' Because it's been bought in the marketplace in competition
with other buyers we're paying real market value whereas with an apartment block very
often the price paid is the cost of construction, a little bit of profit, divided by the number
of flats, in other words the price is often set by the developers accountant.
Richelle Hunt: And if it takes a couple of years, what changes are going to happen in
those couple of years? I mean we've seen that in Carlton with the new freeway.
Phil Manning: Well exactly, changes to value, changes to superannuation and taxation laws,
it's a little bit problematic in my view. Richelle Hunt: Jan's called in from Glen Iris.
Good morning Jan what was your question for Phil?
Jan (caller): Oh good morning to you, we have an investment property in St Kilda on Wellington
Street and it has two bedrooms, two bathrooms and two car parks. We bought it about seven
years ago and I'm just wondering what your thoughts are about the investment value or
how much do you think the increase will be on the money we invested in? Do you have any
thoughts about this particular property? The property is about 8-10 years old and it has
three floors. Phil Manning: Ok Jan, well look, two bedrooms,
two bathrooms on Wellington Street, that's not too bad either, just off the St Kilda
junction there and two car parks. So for those of you who don't know, Wellington Street runs
through from Brighton Road just near the St Kilda junction back to Chapel Street just
near the corner of Dandenong Road near Windsor, so the location's really good. You know I
think it's probably done ok and you've had it for long enough now to have seen some capital
growth, obviously I can't be too specific about it, it really depends, one side of Wellington
Street does have a bit of a back-on issue to Dandenong Road but in a general sense the
location is outstanding. I'd expect that's done fairly well for you Jan.
Richelle Hunt: When you look at things like Jan's apartment that say is two bedrooms,
two bathrooms, two car parks, is that something you would look for when you're investing that
you could have two people rent it so you would have two individuals, two friends, whatever,
two colleagues as opposed to a couple that could live in a smaller apartment with only
one bathroom, of course that would probably affect the price of the apartment but is that
something that is really quite important? Phil Manning: What's really important in my
view as I mentioned earlier is the car parking space situation. Whether it's a one bedroom
or a two bedroom doesn't really matter that much I don't think, as long as you pay the
right price for it. Do you know for a one bedroom flat sometimes the rent return is
a percentage of the purchase price can be slightly higher. So we'll see a block of flats
in an area like St Kilda where Jan mentioned earlier where a one bedroom flat in the same
block might rent for something like $350 per week whereas a two bedroom in that same block
will only rent for say $380 or $390 but the difference in sale price can be as much as
$100,000 so for that extra $100,000 you really only get that $40 or $50 per week extra rent.
When we look at these properties and assess them we sometimes lower our eyes a little
bit and actually say well maybe we don't need to spend quite as much or get a really excellent
rent return and if the facilities are there and the potential to rent the property easily
is there then those are the sort of properties we look at.
Richelle Hunt: Would you see a one bedroom flat though, rise in overall value...
Phil Manning: Well they have Richelle. Richelle Hunt: Yeah I know, who would have
thought you'd pay $400,000 for a studio apartment. Phil Manning: That's right, but things change,
as I said to you, I've been in this industry for a very long time and when I first started
you had to have a two bedroom flat to get them rented, a couple of girlfriends would
rent together you know, whereas now people are far more independent, if you do have a
girl that wants to rent a flat in a one bedder, she'll be there by herself, she may be in
there with her partner. So the reality is that one-bedroom flats have become a little
more popular with rent because there were less of them built when they were being built
in the 70's and people's lifestyles and approach to lifestyles have really, you know there's
a little bit more demand for that independence .
Richelle Hunt: And if I'm going to generalise you're probably going to have a really good
tenant if you have a one-bedroom. Phil Manning: People get really concerned
about tenants but there are plenty of good tenants around.
Richelle Hunt: I rented for a very long time and I was fabulous!
Phil Manning: So was I! Richelle Hunt: 1300 222 774 or you can text
0437 774 774. Lots of stories around with first home buyers versus investment buyers
and first home buyers being sort of pushed out of the market a little bit now, we've
seen a loss or a reduction in the first home buyers grant or various areas of the first
home buyers grants depending but we have seen a reduction in stamp duty, which that's where
the big cost is, but mums and dads having to kick in, for those that are lucky enough
I guess for mums and dads that can, is that just something that is just, I mean I've just
had a baby and all of a sudden my husband and I were saying...
Phil Manning: Start saving Richelle (laughs) Richelle Hunt: We have! And we're not putting
much away because you can only put away what you can afford but we're going to have to
help this poor girl buy a house. Phil Manning: It's commonly referred to in
the industry as the 'Bank of mum and dad' and I guess in a way, if people are able to
help their families before they die and leave the money to their families -- well enough
if they're in a position to do that. Very many people of my generation have found themselves
very well established and perhaps are able to do that and we see that quite often. We
also see other different things with investing or even buying, we're seeing say two first
home buyers, a couple of girls, I've helped them buy properties where two young women
have bought a villa unit together whereas independently they couldn't have achieved
that so they buy those as tenants in common and get themselves into the property market.
Richelle Hunt: 1300 222 774 is the number to call if you do have a question for Phil,
I know it's earlier in the year to be thinking finances and to be thinking property but before
you know it the year is upon you and we have to start thinking like this.
I had this discussion the other night and I find it quite interesting and I was kind
of just throwing it out there and I don't know if this is the case but I love to create
a theory. My theory is is that we are going to see all these kind of little sub-cities
within our city occur and I was talking in particular the bayside sort of your Frankston,
Edithvale, Aspendale area, so you're still bayside, you're a fair way out of the CBD
as such but you're on a train line, you've got the bay which is just stunning and you've
got your community mini-cities -- being Frankston down there... Are we going to see a drive
towards the city being split up? Phil Manning: We are, that's right, because
there are employment opportunities for the people who live in those areas, there's industries
and social infrastructures in those areas, you know, if you lived in Frankston you might
work in Dandenong, you might drop back into the Cranbourne corridor and the same thing
applies in the north or even in the west where there's massive developments going ahead.
We expect to see as a result of some of these massive growths in the growth corridors out
in the west, the increase in infrastructures in the inner-west and the inner-north where
medical and business infrastructures will start to show and employment opportunities
will meet those developments half way between the traditional locations of employment and
where they are. Richelle Hunt: And I guess it's affordable
to still get into those areas. Phil Manning: Absolutely and affordable for
first home buyers. And first home buyers, I know they hate the idea, but they really
do have to look a little bit further away from the city.
Richelle Hunt: Well it's not new to do that though is it?
Phil Manning: No, we've all done it. Richelle Hunt: Mark's in Rosebud, good morning
Mark. Mark (caller): Good morning.
Richelle Hunt: What's your question? Mark (caller): I'm just wondering about the
ripple effect, how it works generally from capital cities, say from Melbourne to Morning
Peninsula, how long do you reckon it takes for things to gradually filter through to
the outer areas of Melbourne? Phil Manning: That's a really good question
Mark and if you don't mind perhaps I could take a minute to just explain to yourself
and other listeners the ripple effect and I like to talk about it in terms of Melbourne
or the property market as being like a bit of a dam or a pond and an event will occur
like a lowering of interest rates and a shortage of stock and in the middle of the city the
prices will start to rise so we go into this period of capital growth, so it's like someone
threw a rock into the middle of the lake and the ripples start to work their way out and
it also explains why properties in the middle of Melbourne actually grow at a greater rate
than the outer areas, now the ripples will move their way right out to the end of the
dam and pick up places as they go, you know, they'll cross Dandenong Road, they'll cross
Springvale Road then they'll get down to Frankston or they'll get out in the east and out in
the north as time passes and then there'll be an event that stops that ripple, that period
of capital growth like typically that third of fourth interest rate rise in a series,
but capital growth finishes at the same time across the whole lake but it's the areas in
the middle of the lake, in other words the middle of Melbourne that lived in that period
of capital growth for a longer period of time and therefore had more of an advantage through
that period of capital growth and that's why areas like Frankston, Rosebud or the outer
eastern areas like Ringwood or way up in the northern suburbs of Melbourne, that's why
the capital growth rate, generally speaking, is lower than the inner suburbs. So how long
it takes to get out there really depends on the strength of the ripple. You know, in 2007/2008
we had an incredibly strong capital growth ripple run through the inner suburbs of Melbourne
and it took 6 to 8 months to reach the outer suburbs.
Richelle Hunt: That's not very long though is it?
Phil Manning: It's not very long, that's really fast. At the moment it's probably going to
take, I think some of the capital growth effects we had in the inner suburbs of Melbourne last
year will be reaching the outer suburbs perhaps in the first half of this year.
Richelle Hunt: That was very extensive. I'm sure that answered your question Mark from
Rosebud didn't it. Mark (caller): It did actually and can I just
make a comment too. We bought a property and we were a bit silly, we paid a bit too much
for it and consequently now it's worth about a hundred thousand/a hundred and fifty thousand
maybe, less than what we paid for it about four years ago.
Phil Manning: Well don't beat yourself up and say 'we paid too much for it', just say
you bought it too early. Richelle Hunt: I like that, that sounds better.
Mark (caller): We should have got a valuation. Phil Manning: You'll be right, stick with
it. Mark (caller): No worries, thank you for that.
Richelle Hunt: Good on you Mark, have a wonderful weekend. He's in the right spot down there
in Rosebud, I mean you're seeing lots of people even commute in those areas now. We don't
have long so quickly I just want to ask you about 'International buyers', how they're
changing the landscape, and particularly in areas that are in good school zones and in
the CBD for students. Phil Manning: Look, the international buyers
are a really big part of the Melbourne marketplace now, now we have to be a little bit careful
and understand what an international buyer is. A buyer who has no residency status in
Australia at all, in other words they live overseas permanently, cannot buy established
residential real estate in Australia, they can only buy off-the-plan new property. So
a lot of the stuff that we're seeing in these areas that you've mentioned Richelle, like
the school zones is being purchased by overseas people but who have residencies in Australia.
Now they are, for example, in the Balwyn High School zone, I haven't actually done a close
analysis of it but land values in that area there, to me, appear to be more expensive
than say Brighton even. Richelle Hunt: Yeah well and that's something
that school zones have always driven and is going to for a long time. Well it's going
to be an interesting year ahead, finance is always tricky but it is going to be an interesting
year ahead. Phil Manning, Property Adviser at WBP Property Group, thank you so much for
joining us. Phil Manning: Thank you, thanks for having
me Richelle. Richelle Hunt: No worries, have a wonderful
weekend. Phil Manning: Same to you.