Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Wednesday, 15 January 2014

Best property picks for 2014

2014 property market predictions

In this article here on Property Update I elaborated on my property market predictions for 2014, while acknowledging that I will probably be wrong on some or all of them.

Hobart -1% to 2%
Canberra -1% to -4%
Perth 0% to 3%
Adelaide 0% to 3%
Brisbane 2% to 5%
Melbourne 2% to 5%
Sydney 6% to 9%
Quite conservative on most fronts, as I feel that much of the demand resulting from low interest rates may have been sated in 2013. Others remain plenty more bullish than I (AMP expects 8% growth, while Business Spectator's Alan Kohler tips a massive 10% growth in 2014).
SQM Research ruffled a few feathers by predicting that Sydney would demonstrate 15-20% growth in 2014 and 20-30% growth if the economy recovers strongly.
I listened to SQM's Managing Director Louis Christopher on 2GB 873 Radio the other night, and he noted that he has seen no evidence to suggest a slowing in the Sydney property markets to date. Based on what I've seen so far in 2014, I have to agree...although it is of course early days.
Regular readers will know that my previous favourite property pick was Sydney's inner west. Here is what happened to asking prices in Sydney's inner west over the past few years according to SQM's excellent vendor sentiment index.

Source: SQM
Clearly prices have taken off in a big way, to the point where there is little value in the inner west market today. In fact, in parts, the market may already have peaked, although this is as ever difficult to gauge.

My pick today

My favourite picks in Australia today would include a few key suburbs on Sydney's lower north shore. However, I would not be expecting immediate strong gains in 2014, for property markets can rarely be timed with such precision. Instead, I would be aiming for strong capital gains over the next decade, which is a more realistic time horizon for a property investment.

Favourable suburbs for mine include those with outstanding transport links to the City such as Neutral Bay, Waverton and Wollstonecraft. These are leafy green suburbs, with exceedingly strong owner-occupier and investor appeal. Better still, those lucky enough to live in these locations can be in the CBD in 10-15 minutes, may enjoy fantastic harbour or district views and have all of the trappings of Crows Nest's Willoughby Road on their doorstep.

These are also what you might call WYSIWYG suburbs: what you see is what you get. In other words, the supply is relatively fixed. 

I steer clear of suburbs such as St. Leonards, for example. It has great transport links but what you see is not necessarily what you get. I recently heard about an investor-owner who had a harbour view completely built out. I imagine the tenant will quite rightly be asking for a rent reduction in due course. Planning restrictions can be quite different in transport hubs such as this and periodically over-supply can impact the market.

The fixed supply

In suburbs such as Wollstonecraft or Waverton, although the land may be zoned as high density, it is very difficult to obtain planning permission to build upwards beyond the height of the existing housing stock. From time to time old houses may be rezoned for unit dwellings but this in itself is not necessarily a problem. If anything, some new development is a good thing as it keeps the suburb fresh and the price of new dwellings can underpin the price of existing stock.

The population of Wollstonecraft in 2006 was listed as 8,034 people. By 2011 the population was 8,006 , thus showing a stable population in the area during that time.  The population of Neutral Bay in 2006 was 10,213 people. By 2011 the population was 9,387 showing a population decline of 8% during that time. The predominant age group in both suburbs is 25-34 years.

These figures show how little in the way of new stock ever comes to market and that the population figures remain essentially steady. Households in these suburbs are primarily childless couples and are likely to be repaying $3000-$4000 per month on mortgage repayments, and in general, inhabitants work in professional occupations. 

While the population is stable, the actual demand for property in these suburbs is absolutely soaring, with the population of Sydney increasing at a staggering 60,000 persons per year. Clearly, the population does not all move to the inner suburbs for there is no space for them to do so, but the investor demand increases by the month. The sheer volume of foot traffic through property viewings (even at this normally lacklustre time of year) bears ample testimony to that. 

Traffic, traffic, traffic...

But it's traffic of a different kind which leads me to believe that these suburbs are tomorrow's winners, that being the massive volume of traffic on the road. Something I learned from London is that in cities where the population is expanding apace, suburbs with direct public transport links to the City become increasingly sought after over time. Anyone who has tried to drive around Sydney recently will know exactly what I am talking about. The cost of a growing population will be diabolical traffic congestion. In fact, you might argue that it already is.

Of course, it's also important to buy the right property type if you are buying as an investor or as an owner-occupier, which is where the good old buyers agent checklist comes in. You need to look for the type of property which is increasingly in the highest demand from the buyers of tomorrow. As the adage goes: "Ensure that you buy the right property, at the right pri..." - oh, heck, you know the rest.