Residential property investing: Focus on the bigger picture

By Rob Southwell - March 7, 2019

Headlines warning of price slumps, oversupply and adverse lending conditions paint a grim picture for the Sydney housing market – but investors at a Pitcher Partners seminar led by Sydney Managing Partner Rob Southwell this month have heard a different perspective on putting their money into bricks and mortar.

With forecasts of prices falling anywhere from 20 to 30 per cent in 2019, warnings around oversupply in the apartment market and availability of credit increasingly tight in the post-Royal Commission environment, the arguments against investing in property in Sydney right now seem unassailable.

Speaking to an audience of property investors at a seminar at the Pitcher Partners Sydney firm, Managing Partner Rob Southwell acknowledged those looking at the market faced a number of challenges.

“There is a lot of volatility, a lot of tax changes in the offing… there’s a lot going on in the residential property market right now,” he said.

The short-term drivers for consumers, particularly consumer confidence, included unemployment rates and wage growth, house prices, and economic uncertainty, while investors were focused on interest rates, rental yields, outlook for growth and tax policy. Both groups considered availability of credit the most topical at present.

But Southwell said investors focusing on the short-term market drivers were missing the big picture.

“Over the past 25 years in Sydney property growth has averaged 7.02 per cent, which is pretty much bang on doubling in value every ten years. That holds true for the past 50 years, or very close to it,” he said.

“At the same time, Australia’s population has grown at an average of 1.45 per cent per annum over the past quarter century, with the vast majority of net overseas migration landing in Sydney and Melbourne. That’s a large number, especially when compared to global averages… and we have an inherent lack of land that can be released to support that population growth.”

Buyers agent and Sky News Business property commentator Chris Gray told attendees opportunities for growth could still be found.

“There isn’t just one property market, even though the media talk about it as though there is,” he said.

“Even in quiet times not all properties are dropping in value… it’s the law of supply and demand.  Blue chip suburbs have less volatility, should have consistent and stable growth.

“If no-one else is buying, what better time to be in the market? You’ve got no competition.”

While availability of credit was more restricted in the wake of the Banking Royal Commission, Pitcher Partners Director – Lending Services John Fisher said investors still had the ability to secure loans.

However, he warned preparation would be key in dealing with financial institutions and those seeking to fund a new property purchase may need to look outside the usual handful of lenders.

“There is a forensic analysis of people’s living expenses being undertaken by the banks in relation to loan applications, and with open banking on the way there will be nowhere to hide,” he said.

Fisher said reports indicated 40 per cent of home loan applications were rejected in December 2018, half of which were refinancing applications.

“It’s important to know what your borrowing capacity is, and plan before you approach the bank – but the banks are definitely open for business for the right applicants,” he said.

The underlying message for property investors, Southwell said, was that for those who understood the market fundamentals, knew their financial position and weren’t seeking a quick windfall, the Sydney residential sector remained attractive.

“A lot of those short-term fluctuations have been there for a long time, and will continue to be there… it’s about taking the longer view,” he said.

“Residential property is a long to very long-term investment – focus on the long-term drivers, but use short-term instability to your advantage.”

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Rob Southwell

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Managing Partner and Partner – Private Business and Family Advisory

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Nigel Fischer

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Managing Partner - Private Business and Family Advisory

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Michael Minter

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Managing Partner

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Leon Mok

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Managing Director

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Brendan Britten

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Managing Partner and Executive Director/Partner- Business Advisory and Assurance

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Managing Principal

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