Get Invested: Part 2: Property learnings and opportunities with Doron Peleg
00:00 Capital growth should be the key driver for the investment decision rather than cash flow. Welcome to the Get Invested Podcast, where we share great conversations with experts from all walks of life to uncover their secret know-how and where they invest their time, their skills, and their money and the benefits that this has created. You see, the truth is that everyone invests. Every minute of every day, we're investing our time, our skills, our energy, and our money in something.
00:44 Some of us are investing consciously, some unconsciously, sometimes for good, sometimes for bad, and sometimes for no impact. Get Invested will help you to start living by design not by default i'm going to help you to make it happen not let it happen you'll hear the top tips on how you can live with conscious intent so that you can live more work less and leave a living legacy by investing now listen to the show to discover the top tips on how to get started make the most of your investment journey and ultimately to be living your dream not someone
01:19 else's. More episodes can be found on iTunes or at bushingmartin.com.au forward slash get invested. Thanks for listening. And now let's get invested. Hi, Fred and fighters. Did you know that over 555,000 residential properties are bought in Australia every year, with between 25-35% of these being investment properties. Now I know first hand how good property investment can be to help you enjoy a great lifestyle, yet sadly only 5% or about 1 in 20 investors achieve sustainable success. And unfortunately property investing is the second most common reason that Australians lose money. Why is this? Well, many private property investors and homeowners want to invest in property
02:16 and live the dream. But they're often not informed enough about the risks that come with it due to three things. Firstly, the sheer volume of investment information that often provides conflicting advice. Secondly, interests of parties such as real estate agents and developers providing biased advice from their vested interests. And thirdly, reliance on existing property reports that only focus on current or past market values, data or conditions. So one of the key secrets for success in property is to access current, high-quality, independent and objective, forward-looking research based on the key investment criteria, integrated
02:58 with economic forecast algorithms. And the only place you're going to find this in Australia is with risk-wise property research. So check them out at www.riskwiseproperty.com.au. So to help you to tackle a future and invest with confidence, this week's episode is part two of the special chat with Doran Peleg. Last week, we looked at the past, summarised the learnings and reinforced the benefits of adopting RiskWise's unique macro to micro research approach. If you haven't listened to part one, go back and have a listen to this first
03:35 as it forms the basis of today's forward-looking discussion. This week, we take last week's learnings and we look to the future. We glean Doran's well-informed and intelligent insights into what is likely to happen that will influence property nationally and conclude with a detailed rundown of where are the best areas to invest across the country moving forward if you're looking for sustainable growth. so if you want to know what is likely to happen with your property in the future
04:06 or you want to know what to invest in and where then you can't afford to miss today's informative insights from the intelligent and entertaining Doran Pellick in terms of your view and let's go macro to micro on this as well in the context of how you see 2020 shaping up in the property side? What's going to affect things? What things should people be aware of? And where does that leave it in terms of existing property owners and potential property investors?
04:48 Okay, so look, without potential additional credit restrictions by APRA, which could be applied yeah without them the the the market is extremely positive okay there are many many indicators that show that mainly in sydney and melbourne but also other areas like southeast queensland the market will perform very very strongly why is that because of a few reasons The first one, the sentiment has completely changed. Price increase expectations are very, very strong. The second one is that all the negative things that we had were effectively reversed. We don't have the political uncertainty or the taxation changes uncertainty.
05:43 uncertainty. It's way, way more affordable to buy an investment property. The out-of-pocket for investors is very, very low. The interest rate, and also for only occupiers, is very, very low. The lending restrictions were reversed, effective, not exactly reversed, but not as strong as they were yeah and in addition you have a lot of burgers on the market if you have properties that then a couple of years ago were let's say 700 and now they're around the 620 650 yeah it's plain English well below what would they had and all the projections are suggesting that it is highly likely that that the market will reach a new peak in 2020,
06:40 which means anything that you buy below the peak will definitely be profitable if it was below the peak price. So that's very simple. The only problem or the only concern is actually the regulator. Because so far the investor activity has increased, but not that much because the investor journey usually takes a bit more time yeah okay from the
07:12 point of time that an investor makes a decision i'm going potentially to buy sorry not a decision as an idea to potentially buy an investing property okay until the settlement usually it's six to 12 months yeah and don't forget that the recent changes happened effectively only in in june okay yeah which means that we're going to see an increase in investor activity we've seen that but we're going to see further increase from february next year and then if we see a strong increase in investor activity plus very strong price increases in sydney and melbourne the regulator can come and say okay let's reintroduce credit restrictions on on investors why because number one it will cool the market a bit and when i say a bit it's not price reductions it's just
08:19 instead of delivering double-digit capital growth to deliver, let's say, 3% to 5% capital growth. Number two, investors are a very easy target. It's very popular to say, let's say, reduce investor activity and increase first-on-buyers activity. Then the other way around. No one wants to hear that investor activity
08:47 is at record levels and first-time buyers is at record low, right? It's all good news. And the third thing is that credit restrictions were proven recently as very effective on investors, which means there is a method.
09:04 It was tested live and proven and very effective thing. So just repeat what you have done successfully. So this could be a big one on the market but if we do not have any changes to credit restrictions then it's going to be a very very strong year to the market and also there is the realization again that long term is is the
09:32 game yeah there is huge on the supply of houses and all the fundamentals are there yeah it's spot on that. If we look more locally, South Australia, for example, is going through changes to land tax and I've had a good look at that. While there was a lot of media noise at the top end of town around the impacts that land tax would have, for the average mum and dad investor they're actually going to be better off with the land tax changes. We're seeing changes to the residential tenancy legislation in Victoria and Queensland, which, again, there's been mixed reports around the impact that might have on demand, but also property values.
10:19 Have you had a chance to have a look at that in any detail and what, if any, impacts that might flow through into the property arena? Yeah, a bit. And I'll actually start there from the bottom line. And what we've seen is that, generally speaking, those are not considered in good markets as changes with material impacts. Usually, the fundamentals of the market, especially when we talk about, let's say, Sydney or Melbourne, or in this case, it could be other light, are the key drivers or they have something like 80 to 90 percent of the of the driver for the
11:05 changes yeah and the additional things regarding a bit more taxation and changes as long as they are not radical and i'll explain in a second what a radical is yeah they only have a marginal impact on the market when do you see a major impact on the market if you have a search on property investors that you want let's say yeah um additional stamp duty of eight percent instead of four percent yeah and you also want to have a special searches of additional four percent and you inflate the property value by 8% on foreign investors, this is a material impact, okay? If you change the taxation, the land tax completely,
11:58 and you're saying that the primary place of residence is not exempted from land tax, this will have a huge impact on the market. Yeah, yeah. Okay, because then we talk about in many, many areas in Sydney, the land tax, the annual land tax is deep into the five figures. I bet. Okay? Yeah.
12:22 This would have a huge impact. But all the other changes, when you take the quantitative look, and again, if you remember the previous lesson that we talked about, cash flow versus capital growth, You see that this has some moderate impact on cash flow, but it's not enough to shift the market. Yeah, brilliant. That's good. Are there any other headwinds? And I'm thinking here probably more broadly in the context of the mainstream media often like to keep us fearful of what's happening both globally and nationally. Are there any headwinds that you're seeing that may have an influence on property moving forward, Doron?
13:15 Look, generally speaking, the media need good headlines, right? So if someone with a nice title and alleged credibility is going to say that the property prices could fall by 50%, excellent. A great headline, okay? Yeah. Why? Because look at me, if I'm the reporter, I have allegedly a well-regarded person, give me a really nice headline, I'm obviously quoting him, which means it's his accountability, he's going to make fun of himself, right? obviously I'm going to quote him and I'm going to pretend that he's a really smart person
14:02 I'm going to ask him some trigger questions to have even a bigger headline now the point is to eliminate the background dogs, yeah, if you look at it
14:18 that's a funny story that's an entertaining story, okay it's it's more look when i when i read things like that it's uh uh it's very similar to i don't know to gossip and things like that it's it's kind of it's it's a meaningless thing for entertainment and and this is yeah and this is a key thing because when when you look obviously we all use the media and i read a lot i read everything but what what what you need to do is to focus and
14:52 to say, look, who are the, I don't know, three or four or five research houses or economics that I would like to review and see what's happening, yeah? Yeah. Let's say that I really like to review and to follow Bill Evans from Westpac and let's say Shane Oliver from AMP, okay? For our discussion. so I see and I also love by the way
15:24 Pete Wurgeant and Alan Kohler I mean he's not very property pro but his overall rate of the economics is pretty good exactly so these are just examples and
15:39 you have those, you have a few others it makes sense what they're saying it's a very factual base yeah these guys have a good reputation credibility obviously no one is perfect everyone can can make some mistake which is fine yeah that's not the point the point is that this is the general direction and if someone out of the blue comes and has a huge headline about something that is is completely different from these from what these gentlemen are saying yeah and say okay look
16:17 I understand, but seriously, it's not an intelligent conversation. The headline is really funny, entertaining, newsworthy definitely for the fun, but there's no substance there. So that's what I'm suggesting to eliminate the background noises and to focus on the, let's call it, reliable and independent credible people that you know. 100%. Mate, most of those industry pundits that you've spoken about
16:55 forecasting at least one and probably two more rate drops fairly early in the new year when the RBA returns in February and then probably another one not too far away. let's say that both of those don't stimulate the sort of inflation or wage growth and unemployment figures that they're looking for what what's your read on what sort of stimulus if any may occur from that point and and what if any impact will that have on property okay so that's a good one okay look generally speaking and i'm not sure if the rba do not know or they pretend that they do not know but the Australian economy to my humble opinion
17:44 has a major structural problem okay it's a very simple thing to explain in the past we had a huge reliance on the money okay yeah how does it work you have a lot of investment in new projects and Those investments require many, many people to provide direct services, which means to work directly for the mining companies, and indirect services, okay, to support all of the activities, okay? Yeah. Now, when this is significantly reduced, you need to find something else to fill the gap, okay?
18:29 Yes. Now, currently what we have, sorry, what we have currently is simply not enough, okay? So, that's why we would see the unemployment is not going down, and more importantly, the underemployment, which means people work part-time and would like to work full-time, okay? Yeah. The current simple measure that we have of unemployment is not good enough today. Why? Because the market changed. Many people work part-time.
19:04 Many people are contractors, freelancers. So you need to develop a different measure. And we have. We developed something that is called effective unemployment. And these numbers are high. And what happens is that the economy slowly but clearly is going down, which means every time when there is an interest rate reduction, the stimulation of the economy is to bring it up to what it was, let's say, six months ago, right? but it's still going down so every time we need to provide more support but the trend is down okay yeah so it is very very unlikely it's possible but very unlikely that you're going
19:58 to see good wage growth and good improvement in the employment in the next year or even couple of years okay yeah because we simply don't have the right strategy we don't invest in the right things, in technology and knowledge-oriented industries. Simple as that. I think also, Doran, and I know that we've sampled some of this ourselves in our own business, there's a lot more outsourcing going overseas. So there's a lot of that mundane work
20:29 that doesn't have a client interface. Sort of VEAing it to the Philippines and other parts of the world becomes a fairly cost effective alternative for particularly small to medium businesses who are very focused on the bottom line and I think that sort of bleeding through the bottom of the bucket exercise is probably not captured too much in the figures but would have to be having an impact on employment levels generally I would have thought
20:58 Of course it does and it happens all the time there are quite a few small things that you know in an isolation they're really small right but when you start aggregating them so obviously the aggregated impact is is huge right yeah now unfortunately in australian look currently we're in the 21st century that's news for the australian government i think and i'll tell you why the 21st century is the the the knowledge century okay yeah everything is about technology innovation and knowledge and we saw that all over the world right we see the electric vehicles that will be here okay and that's it yeah and we see all the big corporations
21:57 we see artificial intelligence face recognition everything is going towards technology now in that space you have basically only two options number one you provide the technology you are the owner of the company or the companies the two you consume or you are the client okay yeah so So currently, the U.S. and Israel and other places, they are the owners, they are the providers. In Australia, largely, it's the buyer. Simple as that. Now, I don't know about you, but I prefer to be the seller than the buyer. In the time, yeah.
22:41 Now, it's not only that. And this is another thing that some people do not fully understand. these are highly paid positions okay which means and if i have two different job person is a barista yeah i don't know 40 50 60 000 a year i don't know exactly the salary is another person is a senior rt developer and he earns 130. yeah okay so these are completely different things because the person who earns 40 or 50 or 60 uses all his money to pay for um rent usually because they don't have a house right yeah uh food and a bit more right and that's it yeah the guy on the the 130 has completely different expense patterns, right? So it can employ someone who is going
23:45 to clean his house, it can spend on restaurants and clothing, all the other stuff, it can save a bit, right? And from all the savings, we can also have investments from the other side right people can borrow those funds yeah okay so these are completely different types of positions and what we had in the past in the mining era we had a lot of highly paid jobs most of them were not sophisticated but many many people were deep into the six figures right yeah and these are the positions that we need and obviously if we don't have the mining We need to have that in the technology. Yeah, totally.
24:32 And if we have that in the technology, then we're in a better position. Yeah. Yeah, that's a very good read, mate. So, look, just to bring it to a head, I think there's some absolute gold in what you've mentioned there. And drawing a thread through the keys there, we're coming into a very positive environment potentially in property generally. So if I'm an investor, Doran, and I've got half a million to $600,000 to spend, I'm looking for a house. My focus is on highest growth over the next 15 years plus. So I'm in it for the long term.
25:10 If we go around the country, what would be your top three areas you think that you'd start to focus on in the next 12 months? so look first melbourne is the number one number two and number three and i'll tell you which areas and and and why and what happens there right so the key thing with melbourne is that currently this is the only place that you can have both a few the combination that you are looking for because number one you're looking for houses yeah yeah number two you're looking for a really good proximity to the cbd yeah right yeah and number two and number three sorry you're looking for a sensational long-term sustainable growth and also you would like to reduce the risk right yeah now what happens in Melbourne and let's let's first talk about the western
26:17 suburbs then about then we'll talk about the other areas okay yeah now what happens there is something in Melbourne West is is number one why few reasons the first one price range you the median AVM for houses is around the six hundred than $17,000, okay? Yep. Now, Melbourne West is replicating the very same patterns that we saw in the western suburbs of Sydney, which means gentrification, which means even high crime areas significantly outperform the market, okay?
27:01 Yeah. We see land values are going up. We see a huge undersupply of properties, of houses, okay? Now, the great thing about Melbourne is that they also have relatively good plans and rezoning for units. Why is it so good? Because of a very simple reason. If I have a house, I own the land. And if I own land and there is rezoning in the area,
27:37 the land value is going up significantly. Yeah. And we saw that a lot in Sunshine and Sunshine West. So there was a funny situation where a couple of years ago where houses carry ultra low risk and units carry very high risk. Yeah. Okay. But this is, so Melbourne West is absolutely brilliant.
28:04 Right. Another good area, another SA4, again, with good proximity to the CBD is Melbourne Northwest. Yep. Which is a bit further out. The median prices are $6.42 for houses. And again, very, very similar things. Now, and again, good demand and affordability is a huge key driver for those areas. Now, if you want to go out a bit, and this is an interesting one, it's Geelong.
28:43 Now, what happens in Geelong is interesting because of a few things. So the entire area has been developed and is being transferred materially. now it became from a suburb of um compromise to a southern area sorry of choice yeah and we saw property prices went up really really significantly the median of the house in the sfo is about the 600 yeah now there are big plans there on on the train line between geelong to melbourne that it It will take you roughly 30 minutes, okay? Yeah. So this area is also considered really good, and there is another area.
29:34 And again, it's a bit outside of Melbourne. The price is a bit high. It's about $6.90. But it is a lovely, lovely area that I think that you know really good, which is the Mornington Peninsula. Yeah, yes. Beautiful part of the world, mate. Exactly.
29:52 Now, exactly. Now, what happens now is that there is also a very strong trend. It's a modern trend. It's not millennial. We talk about the boomers and the Gen X to move to good lifestyle areas, okay? We have either the sea change or the tree change, and the Mornington Peninsula is a sensational place, okay? it's a really good place it's a beautiful area
30:25 the demographics is really good it's relatively reasonable access to Melbourne again the prices are not that cheap it's $6.93 but when you talk about cost benefit this is a really
30:41 magnificent area I'm talking to you from there right now we've got a second base over in that neck of the woods now close to my wife's family and spending more time over here than we have done in the past
30:58 and it is a beautiful spot and everything you've just said very easy to get to the city it's pretty easy to get to anywhere and a great lifestyle location at the same time yeah so first obviously you know what you're doing but in addition
31:11 what we see lately in recent years is that when we have a more flexible working arrangements with more freelancers with more experts with more let's call it mobile professionals with more more people with money and retire semi-retire so all of these areas of their lifestyle they enjoy huge demand yeah so if we move them now to to new south wales new New South Wales is obviously tricky.
31:46 Why? Because we have a problem with the prices there, in plain English, okay? Yeah. If you want something with a relatively good proximity to CBCBD, it has to start with the seven figures, which is not really good. Yeah. Now, and then what we sell in Sydney is that you have a few options. option number one
32:10 is to go to the outer southwest so the hardcore of the western suburbs it takes you roughly an hour or so to get to Sydney CBD
32:25 the key thing with the outer areas of Sydney is that again because of under supply of properties in the inner and middle rooms and outrageous property prices, many people have to move out. Another area is the, again, same format of kind of western suburbs, is the Sydney black town areas.
32:54 The third one, which is interesting and has become very popular in recent years, is the central coast. Okay, so we have the median AVN for houses is around the 600, and we have quite a few popular areas there. Now, as you can imagine, areas of suburbs that are beach suburbs require premium, but you have other suburbs that are not on the beach but have good access to the beach. This area is a lovely area, and again, many people from Sydney move there because you have a lifestyle or beach lifestyle for a fraction of the cost that you have in Sydney. Excellent. What about if we look at Queensland? What's your thoughts around Queensland? okay so look uh queensland actually is is an interesting game place so let's start let's talk about southeast queensland okay yeah let's uh remove the background noises let's not think
34:05 about central queensland mining towns because let's let's leave it for for other discussions Now, in Queensland, actually, you have quite a few interesting things. So, obviously, the most popular areas, especially when you think about long-term and lifestyle and all of those things, are the Sunshine Coast and the Gold Coast, okay? Now, the Sunshine Coast, you have a median price of $6.41. Now, the key thing to understand that the Sunshine Coast is not necessarily Noosa. Noosa is way more expensive. Yeah. But around that area, there are quite a few suburbs with good proximity to the beaches,
34:51 very popular areas that people really, really like. Yeah. Another area that, again, we see big population growth. We see also a lot of developments of units, which means land prices become more expensive. It's obviously at the gold cost, okay? Yeah, right. The median AVM is around the 669. So obviously, you have some areas that are around the 500 to 600.
35:22 You have some areas that obviously are more than that. Yeah. now if if we talk about brisbane so look brisbane east and brisbane south both both of them are relatively and well well located good access to the CBD a good process and the the south area is is more expensive with the 680 avm yeah brisbane east is more affordable with the 560 okay yeah now if you have the lower end of the market which means your your budget is uh below the five between the four to five then you can go out to but you have to be patient you have to go to areas like other Marathon Bay, which is also a lovely area, Marathon Bay North or Marathon Bay South.
36:26 And the point here that obviously Marathon Bay is the safe side of the Sunshine Cove, but not as popular, right? And you have a bit more development there, so you just need to be be a bit more patient but if you have lower lower budget that this is uh these are the places for you yeah love it love it uh you mentioned south australia as well uh let's let's have a quick chat about sa uh are there any particular locations there that you think um so look the key problem with the South Australia is the budget why is that?
37:07 you know why is that because you're from there because when you talk about the budget of let's say the 5 to 600 it doesn't leave you with many options
37:22 you have Adelaide South and Adelaide West yeah basically that's basically it if if you have unlimited budget and then this is this is a different a conversation because there you have other lights central and hills are you specifically like like there is area yeah which is a really good combination of fair beautiful houses a good access to the CBD the problem is
37:58 is that the prices start from the mid to sevens. Yeah. In many cases, it goes way, way deep into the seven figures if you're looking for a house that ticks all the boxes, okay? On the other hand, you don't want to go to the southeast or to the outback. The property prices are way, way, way lower, But also the risk and the demand is not as good.
38:30 Yeah, no critical mass to drive the economies in those areas. So a bit like a mining town, you're going to be very hit and miss in a bit of a rollercoaster ride. So not the sustainability in those locations. That's brilliant, mate. Well, look, really appreciative of your time, mate. I know how precious that time is. You've given us some brilliant insights across what's happened, what we can learn from it, what's about to happen, what that means to existing and would-be investors, and a really good drill down on where to look, given those sort of price parameters we spoke about.
39:07 Always love talking to you, mate. I'm going to really encourage the listeners to jump on your site, RiskWise Property, and subscribe to those reports we spoke about because they really are giving them true independent insights on where things are happening. And I love the way you call it how it is. There's no vested interest in what you're saying, Doran. and it's just how you see it based on the quite intricate parameters that you build around assessing what's happening in property. So very appreciative to have you back, and I want to continue to do this with you, Doran,
39:46 because your insights, you talk about the few people that you should listen to, you're one of them. Now, I add you to that list for myself, so I would be very humbled if you were happy to continue to join me on Get Invested to give regular updates on what's happening in property around the country. Yeah, definitely. Bushy, first, thank you so much for really for having me
40:08 and all the nice words and compliments, which is really good. And yeah, definitely just let me know. I'm always here to help. And again, just say it as it is. It is what it is, right? It is what it is, mate. Good on you, mate.
40:22 Cheers. Cheers. Well, Freedom Fighters, how good was that? If you get a summary of all this investment gold in the show notes, just email me on hello at khgroup.com.au. That's H-E-L-L-O at khgroup.com.au. Or check us out at www.bushymartin.com.au forward slash getinvested. I look forward to joining you next week for another episode of the Get Invested podcast. so thanks for listening and as always dream as if you live forever and live as if you die tomorrow
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