SKY News Real Estate with Ben Kingsley – Investing in a Changing Market

The main theme running through today is obviously buy, sell, hold. What’s the best thing to do in this market, which is clearly fluctuating in the major capitals , what’s the main advice that you’re giving to people today?

Yeah, it all comes down to the asset selection. So if we’ve made a good selection, we want to play the long game. Look, there’s times in the market where we do see a correction coming through, but if we’ve got a good, solid asset that has strong owner-occupier appeal then we’ll just take a big deep breath and say to ourselves, “We’re playing a long game.” Because these assets, when the market does move again, tend to do really, really well. If you’ve bought an asset that might be oversupplied, such as an Off the Plan unit or something like that, you’re probably going to have some challenges. So that would be the exception to the rule — because these types of properties are the ones that you might be sitting back and saying, “Well how long do I wait?”

We’ve seen properties from past booms that are still selling for roughly the same price that people bought them in 2003 or 2007 — so they’re the types of property where you have to think about the opportunity cost and if you need to move on.

 

We actually had a property last week in an auction that went for, I think it was $70,000 less than it was purchased for 18 months earlier. So what advice are you giving to these people then? It’s obviously by individual assessments…

It is, yeah , and that’s the whole conundrum of “sell or hold?” So the analysis that you would do is — we’re getting a little bit technical — but it’s a rollover cost. Basically: what would it cost to sell out of that properly and go into another property? And how do we do that? You analyse the demand and supply in that particular area. So, if you’re seeing a lot more supply coming on, there’s very little chance that the property is going to move up in value for it maybe 3 or5 years. So, if you’re sitting back and saying, “Well this is now affecting my overall investment strategy”… then, ultimately, I might have to divest from that asset, and then pick a better one in an area and a location where there’s pent up demand and more chances for capital growth.

 

What are those areas and locations that you’re directing people to? Where is the pent-up demand?

That’s a big question… where are we buying? In our Buyers Advocacy business, we’re buying at the moment in South East Queensland. We’re buying houses in Brisbane and Adelaide — we might actually have someone at that auction right now! We’re also buying very close to the water — so houses in Brisbane, and some of the better-yielding properties really close in, like 500 – 1000m, from the beach in South East Queensland. That’s the Sunshine Coast and also Gold Coast. We’re buying houses in Adelaide — we do like some of the more period bungalows in Adelaide. We think there’s a lot of character homes there.

We really focus in on those character homes because we think that where the owner-occupier appeal is.

Ultimately, the investor should be taking the lead from the owner-occupier.

Owner-occupiers buy with their hearts not their heads. So if we’re “price takers” in the market, these owner occupiers are going to push the value higher and, as investors, we’re going to get in behind that and basically push that area up. Hence, get more value for our property.

 

We’re seeing this push towards regional areas — particularly in Victoria where the regions or suburbs are quite strong in beautiful buildings. Do you see that as well?

Yeah. We’re buying in Geelong, we’re buying in Ballarat; we’ve had a look in Bendigo — so they are definitely some good regional markets. Earlier in the year we were buying in Newcastle, but we’ve moved on from that market because we feel like the equilibrium has come back into the supply and demand in that market. So, yes, they are definitely attractive because you’re also starting to see new technology and your transportation. For Geelong, it’s going to be a 45 minute train trip from Geelong up to Melbourne — so people can commute for work. And then you also have the beautiful Great Ocean Road and the beaches down Geelong way. So we’re definitely buying down there, and that’s been performing really well.

 

Can I just take it back a step? You say “We’re buying”… who’s “We”? And what are you doing with the profit?

Okay, so our business is Empower Wealth — we’re a wealth advisory firm and we specialise in residential property. What we do is, we sit down and plan with our clients the most appropriate price point for them to buy, and we look at what they can afford from a yield and growth point of view.

The income keeps you in the game and the growth is effectively what creates your wealth.

So, from our point of view — we sit down to a strategy, and that’ll tell us exactly the price point that we’re going in for that particular client, so case-by-case, and then we find the best location based on our demand and supply assessments. We score this out of a 100 — we’re analysing 17 variables, and we basically score every suburb for units and houses across Australia.

 

You mentioned that you could very well have somebody at that auction right now  — and that’s a house. Do you see a nudge towards houses rather than apartments because there are excess? What’s your take on that?

Ultimately it’s land that appreciates, and it’s land that’s in shortage. So if you were to do a tick box, it goes: houses first, then townhouses second, then small flats or villas, and then down to apartments.

For us to get into an apartment building it may be a yield strategy, where it might be really close to the beach, so it still has some scarcity. I may have an uninterrupted views that can’t be built out, so that gives it an X Factor. But, fundamentally, when we look at every city across Australia, we are starting with what the investor wants to buy from an owner-occupied point of view. We work back from this based on the demand and supply.

 

Can you tell us a bit about what you’ll be doing today? You’ll be up on the main stage having a chat at some point, right?

Yeah. We’re talking to first home buyers today! We’ve got a really large workshop, which runs for an hour and a half, and there’s 4 of us on the panel. So, we’re going to be talking about the different stages and, effectively, “lining your ducks up.” I’m about lending — I’m a mortgage broker as well as a Qualified Property Investment Advisor. I’ll be talking about the things you need to look at, like understanding cash flow, how to put together your loan application and what things lenders are looking for — loan-to-value ratios, minimum deposits, what sort of savings plans you have etc. One of the big things for first home buyers: affordability is coming back into the market. So, we’ve definitely seen them re-enter, and most investors leaving the market, so for first home buyers it’s definitely a great opportunity to start exploring buying into the market. If they’ve saved their deposit, now’s the time to be looking around.