Property Hub - Investment Insights & Inspiration - Get Invested: Property boom or bust in 2025? With Bushy Martin

Starting point is 00:00:00 Welcome to Get Invested on the Property Hub podcast channel, the leading weekly show for Australians who want to learn how to unlock their full self, health and wealth potential. I'm your host, Bushy Martin, and each week I go deep with the best investors, experts, leaders and founders to find out what it takes to break free from the grind, discover freedom and to live by design. Subscribe now and join me and get invested in the life that you really want. Let's get started. Hi Creative Fighters. Market crash prediction. House prices are crashing. How much will house prices fall? And where will house prices fall the most? The untold threats facing the property

Starting point is 00:00:44 market. Disturbing details of the housing bubble and on the flip side, this could lock you out forever. A property boom is coming in 2025. Property goldmine revealed. The best suburbs to invest. Did any of this get your attention? Because this is just a smattering of the news headlines, YouTube and podcast titles that have emerged in recent weeks. And I can't help but laugh because I've seen this happen every year, year in, year out for the last three decades or where extreme headlines alongside photos of hosts cracking weird, over-exaggerated expressions seems to dominate the airwaves. I just don't quite get it.

Starting point is 00:01:30 It's almost like some social media expert has convinced podcast hosts that they've got to crack some sort of weird expression looking at a graph that doesn't mean much to try and grab your attention. Now, the only thing that all of these have in common is that, well, they're all extreme and they're all designed to tap into your primal fear and greed buttons so you get sucked into whatever they're trying to flog you. But guess what? Just about every one of them and their predictions proves to be wrong and misses the mark. So today I want to balance the books by giving you the facts rather than the fiction so that you can

Starting point is 00:02:13 learn to better read property conditions and make better decisions to suit you and your situation not everyone else's. So rather than feed your fish by pushing hot spots and keeping you dependent on others information and being at their mercy I'm going to continue to show you how to fish so that you can make better informed property decisions yourself so that rather than follow the lazy herd and outsource your financial future to others you can start controlling your own destiny and judge what others are actually saying so you can read between the lines and work out why they're saying it what their vested interests are and how and what does it all mean to you now i want to help you to create your own property gps that aligns with and is based on

Starting point is 00:03:02 your end destination your finance fuel and your best property vehicle in line with your sleep at night factor because we're all different and there's no one size fits all in property in other words i want to help you to create a reliable property framework and template based on proven principles that are attuned to you that allows you to read and interpret what's really happening with property conditions as opposed to property markets that don't actually exist based on medium prices that don't tell the true story because every property in every street in every suburb in every state is different from every other one of the 11 million properties across the country spread across 15 000 odd suburbs and it's why talk of aggregated property markets and making

Starting point is 00:03:53 decisions based on median prices is meaningless and misleading but more on that later this way you can develop the knowledge and skill to feed yourself property fish forever without relying on or trusting others in this world filled with a lot of fake news. So if you're looking for the inside secrets on where and what to buy in the times ahead, you're probably going to be sadly disappointed because no one can guarantee you this, given the multitude of constantly changing dynamics of impact on property and anyone who's telling you otherwise is telling you big porkies. And I'd be very cautious about believing them

Starting point is 00:04:34 as they're likely to be doing it to benefit themselves and their business, not you. So beware of vested interests and the property pipers that may be actually leading you over the cliff. But before we get into what may happen in the future, let's start by reflecting on what has happened, where and why, so we can learn important lessons that can assist us interpret what may happen and what we might need to be doing about it. So before we get into that, to sort of set a bit of a context indicator, let's take a bit of a look at what's happened with property values around the country since the COVID shocks first rocked

Starting point is 00:05:13 the world nearly five years ago, back in early 2020. Now, going from the lowest to highest growth in house prices based on recent domain figures, Melbourne increased 12.5%, Darwin is up 16%, percent. Hobart has grown by 36.7 percent. Canberra up 38.7 percent. Sydney increased by 42.5 percent and Brisbane has grabbed the bronze medal up 67 percent. Perth has taken the silver with an increase of 68.9 percent and little old Adelaide which has for many years been the Stephen Bradbury of the property Olympics, has really taken the top of the pops with a staggering 79.2% growth in the medium house price in that last four and a bit years. Now looking nationally, the combined capitals have increased 41.2% over the last five years, while the combined regionals

Starting point is 00:06:17 are up 44.6%. So the regions continue to outshine their capitals as the exodus to lifestyle continues. And this compares with long-term average annual growth rates in property prices between sort of 5.4% to 6.8% nationally, according to CoreLogic figures, with national dwelling values increasing 382% over the last 30 years. And the post-pandemic property price explosion is actually the second biggest property boom that we've ever experienced in the 260 year history of the country with the tide very unusually floating virtually all property ships in recent times. So this is very unusual and it's not likely to continue at these levels so don't get used to it. So using this as a backdrop to sort of set the comparative context let's have

Starting point is 00:07:11 a look at a bit of a summary of the year that was so that we can have a look at what we've learned about what where and why now it's pretty obvious that despite a lot of conjecture some areas around the country have really defied expectations with higher than expected value and yield growth in some areas but overall we're seeing a gradual return to sort of normal long-term locationally divergent and fragmented performance variations, which is what we've seen year in, year out, except for sort of supply and economic shocks like COVID or petrol and the whole property environment. So if I was to sum up the year that we've just been through in two words, I'd be saying supply and affordability, or more accurately, listings and affordability.

Starting point is 00:08:03 Let me explain, because I want to break this down a bit. So starting with the limited listing supply story, and when I say listings, it's the number of properties for sale. In quite a few areas, we've seen listings that are between 20% and 40% lower than the long-term average number of properties for sale in many areas. So lower supply, when you've got the same demand, no surprise, means upward price pressure. Conversely, areas with low listings and the same or more demand means prices up. And this has actually put a safety net and a floor under prices that has prevented any of the sort of falls that we'd normally see after a pretty strong spike. Now, on the other side of the coin, areas that have got high listings with the same demand

Starting point is 00:08:54 mean that prices generally stagnate or fall. So with this thinking, going around the grounds and relying on median prices, which in my opinion only provides a bit of an indicator but doesn't really tell the true story at the individual property level, if we compare this against the long-term average annual capital growth rate over the last 30 years, again ranging between 5.4% to 6.8% based on core logic figures. Then what we saw in the last 12 months were value drops where there were more properties for sale. So we saw Melbourne falling by negative 0.2, 0.3%. We saw pretty much flatlining or near neutral activity in Hobart that lost 0.1%. Canberra down 0.1% as Well, Darwin finished just above the waterline at plus 0.9%, whereas the limited low listings areas have all experienced very strong above average growth, where we saw Perth growing by 21%, Adelaide 14%, and Brisbane by 12.1%.

Starting point is 00:10:02 So those three areas have seen two to three times above the annual average, which clearly isn't sustainable year on year out. And particularly when we look at that in the context of a 20 plus year horizon where growth rates normally return to the mean over that sort of period. But the rate of price growth is now softening and falling pretty much across the board as the results over the last three months certainly vindicate. Because in that quarter, we've seen Melbourne down minus 1%, Darwin down 0.7%, Sydney's fallen 0.5%, Canberra is down 0.3%,

Starting point is 00:10:41 and Hobart is actually starting to record some recovery green shoots, which had positive growth of 0.4%, behind the softening growth in Brisbane, which was at 1.8%, Adelaide had 2.8%, and Perth 3% over that last three months. So clearly the post-pandemic petrol that has spiked property prices is actually starting to burn low, with the flames reducing to the warm glowing embers that we normally see in property conditions around the country. And this has all occurred during the prime spring season, when a lot of property activity generally occurs. and interestingly, the annual growth across the combined capitals of 5.4% is at the bottom of the range of the long-term average growth and this has been less than the growth in the combined regions at 6%.

Starting point is 00:11:31 So again, the exodus to affordable lifestyle out of the cities still appears to be keeping pace. So this year has been an example of riding the limited supply wave which may be resulting from higher interest rates that are actually crimping buying capacity and causing log jams where many aren't able to sell because they can't afford to rebuy. So clearly it's now way overdue to reduce or eliminate the 3% rate servicing buffer that's been added to interest rates where borrowers need to be able to service a loan at 9%, which is actually 50% now above the actual home loan rate. And this

Starting point is 00:12:12 it significantly reduces how much you can borrow and therefore how much you can pay for a property. So with the next interest rate movement likely to be down, we just don't know when, the 3% servicing buffer and other overly cautious and restrictive lending policy restrictions that the banks are forced to apply clearly need to be reduced to free up affordability and the flow-on of property transactions. But listing supply, or the number of properties for sale, is only half the story the last year. Because what I think we've seen is the great levelling affordability catch-up, where borderless buyers have been chasing cheaper property prices in states where prices were a lot lower, particularly when compared to Sydney and the eastern states.

Starting point is 00:12:58 And this has created booms in comparatively cheap states with concentrated feeding frenzies that have actually been fired by the blowtorch of high-profile buyers agents to some extent. But most states are now approaching property price equilibrium with the average medium house in pretty much most of the capitals around the country being sort of between $800,000 to $900,000. So you can pretty much throw a blanket over everywhere with the exception of Hobart and Darwin, which is below, and Sydney, which is above. But this is likely to change by behaviour next year, but I'm going to talk more about what that means shortly. And to set the context for recent affordable location growth, I think I've been trying to join some dots here on some of the trends that I've been seeing emerging that's really created six critical mass tipping point trend changes that have really created the perfect

Starting point is 00:13:57 storm of convergence in those areas that have done well. And a lot of this is driven by what I'd like to call a bit of a black hole of trust, because very few of us have any trust in politicians or the mainstream media anymore and therefore we tend to get our information by relying on social media where we can get reliable or what we think is reliable in some cases information direct from the source 24 7 right in the palms of our hands on the phone and there's no middle person that's interpreting it or putting their own slant on it So this sort of false sense of security that is being created by that is also being emphasized by the algorithms in behind those social media platforms that mean that we start seeing more of what we're already seeing. So a bit of a concentration in our thinking around that.

Starting point is 00:14:51 And in conjunction with that, one of the other trends, we're now seeing a big increase in data dominance in property. You know, in the 40-odd years that I've been actively involved, we've gone from zero information back in the 90s where I was pretty much spending all Saturday with a highlighter on my hand, looking at the newspaper and then driving around to look at properties. To a point now where we've got pretty much updated active data on everything and everywhere right in the palm of our hand. now that's good to some degree but as anyone who's been in property for long enough knows that property is both a science which yes we do use data but it's also an art form and some of the intuitive information gets missed when you're just making decisions on data and there's also got to a point where there's almost too much complex confusing data going on and for many and they may be making decisions based on the wrong data or they're being influenced by high

Starting point is 00:15:54 profile buyers agents who are cherry picking the data to their advantage. Now this is also being influenced by the trend that I've touched on already which is that affordability concentration where buying capacities have come down which means the price point that people can purchase properties has also come down. So we're seeing a lot more buyers being concentrated into price points sort of up to sort of $650,000 to $700,000. So more buyers being active at the same price points, creating a lot more competition. And if we add that to what I've talked about already in relation to low listing supply, then what we're seeing is a lot more borderless buying. So again, the combination of these things has meant that people are now more comfortable in looking to buy properties outside of their backyard and using the lift-in technology, so more videos, a lot more active information that COVID has helped us to achieve, to mean that we're now seeing a lot more people buying properties in another state from where they currently live.

Starting point is 00:17:06 Now, the cream on the cake for all this is the rise and rise of buyers agents that have really brought all of those trends together. And it's very interesting to see now, but there's a lot of very high profile buyers agents who've got great podcasts and big social media platforms who talk a very good story and are very confident in their delivery and can dazzle us with data. but often that data is self-justifying to drive them into areas where they want to sell property because the buyer's agent doesn't get paid unless they sell a property. So the more they can convince you to sell properties in a certain area, the better they do. Now, what is starting to evidence from that is that we're actually starting to see what I call property market maker and property mover influences. A bit like what you often see in the share market, where big institutional investors who've got big volumes of big dollars can actually drive the direction of share prices

Starting point is 00:18:11 up or down. Now, we're actually seeing very similar activity happening with some of these high-profile buyers agents who are using the same data and are all then competing in the same locations so that often property investors are unwittingly competing with each other to actually buy properties in those locations and no great surprise what happens prices go up the buyer's agent looks like a hero because they can say look you bought a property and it's going up in value but it's been self-created to some degree by concentrating you into that area so this is creating sort of hot spot feeding frenzies in those affordable states and WA, South Australia and regional Queensland in particular, and southeast Queensland have benefited from that.

Starting point is 00:18:56 But it's really what we're seeing is a price affordability catch-up because for a lot of investors who have seen higher property prices in the eastern states, if I look at what prices were in some of those cheaper states, then all of a sudden it looks pretty attractive and with buying capacities down, a lot easier to secure properties in those areas. So I've got some concerns that those areas, the hotspots that everyone's been feeding on, are now peaking and may be getting close to the end of their run. And if we sort of have a look at what normally happens in property on what I call the S-curve of property, where we see somewhere between two to five years worth of strong growth, then often properties will come back five or 10%. And then unless there's new growth drivers being attached to that location, then it's likely to go sideways for anywhere between five to eight years. So just need to be mindful of that, that if you're looking to buy into the herd mentality and feeding frenzy in WA and Adelaide and other areas, then you may be getting close to the top of the market.

Starting point is 00:20:08 and sadly you may then see the value of property go horizontal and plateau for an extended period of time. So where will the growing band of high-profile buyers agents or the high-pipers of property as I have started to refer to them as turn to next? Well this is a great segue into looking at what the year ahead may have in store for us. So what's likely to happen in the future and what you buy and where. Well I've never been a big one for predictions as there are just too many interdependent dynamic variables and it's a bit like forecasting the weather and I just don't want to contribute to the influencer market making activity that I'm seeing others that are driving but of course I'm very happy to discuss likely property drivers and potential impacts on property

Starting point is 00:21:03 conditions. And notice I'm talking about property conditions, not property markets, because property markets make good conversation on the news, but they don't actually exist. So let's look at property conditions to help you make better property decisions. But before I share my thoughts, let's dig into some of the other property forecasts that have been recently released. And the first of those is SQM's Housing Boomer Bus Report. Now, I like this report, Louis Christopher always does a great job because he looks at a number of different scenarios based on some very clearly spelled out assumptions. So we can get a sense of what variables may influence price movements. But if you look at his base case forecast, he's suggesting

Starting point is 00:21:52 average national dwelling prices are going to rise between one to 4% amongst continued divergent locational variation. So we're seeing Perth, Brisbane, Adelaide and Darwin. He expects to outperform again with Perth growth of between 14% to 19%, Brisbane growth from 9% to 14%, Adelaide 8% to 13%. While he's expecting price drops in areas like Canberra, where it'll have the largest falls of between minus 6% to sort of minus 2%, he's expecting both Sydney and Melbourne to fall somewhere between minus 5% to minus 1%. Hobart will be neutralish around the sort of minus 3% to plus 2%. So what we're really seeing there from Louis' perspective is similar geographic variations as this year, but toned down, but still good above average growth generally.

Starting point is 00:22:47 Now, interestingly, the SQM forecast is suggesting interest rate cuts of sort of between 0.25% to 0.5% mid next year, assuming that inflation continues to fall and we continue to see the economy softening. Now, if the interest rate cuts do occur, SQM believes that this is going to stimulate buyer demand right across the country and limit dwelling price falls, particularly for Sydney and Melbourne. Now, one of the other, I always have a bit of a look at what the bank economists are suggesting and the most recent NAB quarter three Ausresi property survey again indicates continued softening levels of growth with combined capitals growing down from 5.9% this year to 4.2% next year on their estimations so going around the grounds with

Starting point is 00:23:43 the NAB hat on they're seeing more fragmented locational variation divergence with purse growth rate tipped to soften from 21% last year to 8% this year. Adelaide down from 14.5% this year down to 7.9% in 2025. Brisbane growth falling from 12.3% to 5%. Sydney 4.1% to 3.7% with slight recovery growth in Melbourne from minus 1.7% in 2024 to plus 3.3% growth in 2025 and Hobart up from 0.2% in 2024 to 2.4%. So softer growth below the long-term average projected in all but Perth, Adelaide and Brisbane across the major capitals as we see it. And one of the other estimates and forecasts i've tapped into is the domain end of year rap report now they're suggesting that they're confirming a slowdown in growth in 2025 and while they see much weaker

Starting point is 00:24:55 housing conditions they're still predicting house values in every capital to increase especially when interest rates start cutting which they predict is going to be in the second half of the year. So they're forecasting a property year pretty much in two halves. Domain are expecting combined capital city median values to rise somewhere between 5% to 7%, with Perth continuing to lead the charge with 8% to 10% growth, bringing their median price to $984,000. And for the first time in 20 years, they suggest that Sydney and Melbourne will have a gap in their median house prices of 60% with Sydney at $1.75 million and Melbourne at just over $1 million. Now they also predict five out of the eight capitals including Sydney, Melbourne, Canberra, Brisbane, Adelaide

Starting point is 00:25:45 will have a medium house price over $1 million by the end of the year with Perth not far behind. So overall weaker levels of growth again due to affordability constraints, no big surprise there. So if we look at all of these exercises, there's a lot of stats and numbers there, but what does it all mean and boil down to? Well, as a bit of a summary, we're really going to see a return to normal conditions in that sort of 5.4% to 6.8% average growth range, which is still good, by the way. but we are going to continue to see location variation divergence with growth slightly softer and paler and pretty much a carbon copy and repeat of this year. Now, which is the best time for serious investors to take use of this?

Starting point is 00:26:41 Well, it's right about now because if you're prepared to do the hard work to be investing in property and you're going to outshine the sort of lazy Johnny-come-latelys who have been able to slipstream on the back of affordable catch-up growth, which has been pushed by the property pipe profiler buyers agents, and they haven't done the work, as the growth that we're likely to see is not sexy or exciting enough. So some big opportunities if you're serious about it.

Starting point is 00:27:08 But I need to emphasise here the danger I'm relying on area-aggregated median property prices, as they only give an overall indication of direction and sentiment, because the devil's actually in the detail and a world of property opportunity sits below the numbers. So treat them with a grain of salt. Yes, they indicate what things might happen, but you need to focus on specific area and property variation

Starting point is 00:27:34 and take into context the unpredictable nature of unforeseeables in property. now let's start to have a look at the property condition drivers that may influence the property conditions in the year ahead and i always like to have a look at supply demand and sentiment in the context of lifting factors and dragging factors based on what's going to happen so we can start to join the dots in between so let's start by looking at what may change and I emphasize may because there's a lot of big ifs around this and depending on what other things change as a response to it so it's not a straight line lineal progression with this it's a matter of trying to bring this all together and the first

Starting point is 00:28:24 one which I'm going to touch on is interest rates interest rates have been top of the pops in pretty much everyone's discussion over the last couple of years and rightly so and my read generally is the interest rates will be initially a drag but then potentially a lift because we're now seeing the average mortgage of it's around about 650 odd thousand dollars with repayments increasing 60% since the COVID emergency rate settings started rising and for the third of homeowners with a mortgage that are doing it much tougher on top of 40% price increases and just about everything, it's making it really tough. So while the rate of inflation is actually starting to slow, prices generally are still very high compared to what they were. So

Starting point is 00:29:16 understandably, people are really starting to struggle. Now with this backdrop, let's have a quick look at other rate predictions. So again, returning to Domain's end-of-year RAP report, AMP chief economist Shane Oliver forecast that there'll be free rate cuts dropping the RBA cash rate from 4.35% down to 3.6%, meaning that home loan rates will drop down into the 5% to 5.5% range, which will reduce your repayments, but also increase your borrowing capacity. And the big four banks, with their economists in-house, all differ on when and how much they predict rates are going to drop. So CBA and ANZ are forecasting the first quarter percent rate drop in February 2025, while NAB and Westpac are tipping that rates won't start coming on a delay basis until around about May of 2025.

Starting point is 00:30:15 Now, the wildcard impact on interest rates and the timing of cuts is also likely to be influenced from the lagged flow-on effects on what actually happens with the US economy and US rates once Trump's new show, The Apprentice White House Series 2, kicks off in January, which I'm going to elaborate on shortly. So the timing and size of rate cuts will continue to be dependent on inflation, global economic conditions, and Australia's economic performance. But the next rate movement is likely to be down, which is good news. It's just a matter of when. Now, as a bit of a summary, I think interest rates will be a lifting factor in the later part of 2025. They may be slightly higher for longer, and there may be less cuts over a longer period. But

Starting point is 00:31:06 The rate cuts are going to be stimulatory for the property purchase activity and price movements, but not likely to be at the sort of FOMO-driven levels that we saw during the sort of COVID emergency settings. Now, the next change that may occur is potentially listing levels to increase, which will be a drag factor. So given the low level of properties for sale in 2024 and with improving conditions around particularly interest rates. I'm expecting that the number of properties for sale will return back towards the long-term average, given how far they've been down. And this will be promoted

Starting point is 00:31:44 through those buying capacity lifts on the back of the rate cuts, along with potential lending policy relaxations, because the banks are actually doing it tough. And we're seeing behind the scenes that they're already starting to soften off some of their policies to make it easy for people to get a loan. So more homes for sale equals a increase in supply, which is likely to soften price growth. Now, let's turn to potential economic changes. Now, I've got to start by saying I'm not an economist, but I'm definitely an educated observer because I'm very much a lifetime learner and I've been spending almost 45 years now reading property and what it's been doing. So from a context perspective, if we look at the Australian economy, it is softening and

Starting point is 00:32:37 it is pretty susceptible to changes now, given the fact that a lot of people are doing it much tougher. And why I mention this is that there's always a very strong link between jobs and property, because the economy is the biggest influence on property values, despite what the media may think around rates and migration and everything else that they want to try and blame it on. But the old adage that if you just follow the jobs and follow the growth, you'll likely be successful in property is pretty important. So it's very much a delicate balance between those demand, supply and sentiment issues. And interestingly enough, we're seeing the sentiment factors because of the 24-7 nature of both the media and the social media platforms

Starting point is 00:33:24 along with these sort of high profile buyer's agent market makers that are having a bigger impact on confidence is really starting to impact more on what is likely to be happening from that context. So what we're likely to be seeing is potentially more periods of uncertainty and when there's uncertainty people lack the confidence which means they're still making decisions which often means they do nothing for longer or delay and wait and see. So applying that approach to the sort of macro, micro, micro and very much a top-down approach to what we're seeing, we are likely to be seeing more and increased global instability particularly with what may happen in the Ukraine, the Middle East, and potentially Taiwan, given the US pullback.

Starting point is 00:34:14 And one of the biggest influences that's more likely to happen is the flow on from the US election. Because let's face it, the US is still by far the biggest economy in the world. And if the US gets a headache, we need to take an aspirin. And with the Trumponomic trickles starting to flow through in January once the tangerine tornado gets back in the chair we're going to potentially see Trump be unbridled given that he's got rid of all the people who were holding him back last time and we all know how erratic and irrational and how much he changes his opinions and his decision making so that's going to add a lot of confusion a lack of consistency lots of uncertainty, potentially lots of changes, and as a result, probably a fair bit of investor

Starting point is 00:35:08 conservatism. Now, the interesting thing here, though, is there's generally a big difference between what Trump says and what he actually does. But the three biggest impacts that will flow through to property here in Australia are what he's talking about in relation to tariffs, what he's talking about in relation to tax and of course his migration stance but it's a matter of if he doesn't and when those flow throughs come through so there's pretty much a number of competing conflicting economic scenarios that we need to consider here but underneath all that we're seeing a big shift to pretty much a protectionist separatist isolationist approach coming back into the US as they apply their big wall shrinking yard America for Americans

Starting point is 00:35:58 approach. And if they follow through on the tariffs, that is very much likely to be a drag back to here as far as property goes. What I mean by that is that he's been talking about applying anywhere between 20% to 60% tariffs, depending on which country, but potentially up 60% tariffs on China. And what tariffs mean is that prices for Chinese goods that come into America will be slapped with a 60% increase. We're also talking 10% to 20% on Australian goods being taken into Australia. So that's going to have a big impact on dropping demand in China. And China is very much a manufacturing powerhouse, and the flow on from that will impact on our resources and our agriculture. So we're likely to see the flow on effects there on the local

Starting point is 00:36:54 economies of Western Australia and Queensland. Trump's also talking about some pretty big company tax cuts from 21% down to 15%, which will be inflationary because it's likely to mean that companies be spending money which may also mean that interest rates may rise in the US and because of parity measures and for Australia to remain competitive there can't be too much a differential between rates otherwise people will stop investing in Australia so that's potentially going to keep rates here higher for longer but there's also some wild cards that may come out of what happens in the US. He's talking about the wall, but he's also talking about deporting somewhere between 8 to 15 million illegal aliens. And of course, less workers

Starting point is 00:37:44 means less tax, which means a spiralling US government deficit. At the same time, there's been talk of Elon Musk bringing in austerity measures to try and cut back government spending, which is also a bit recessionary and may sort of slow the economy. On the flip side, There may be some growth from the local manufacturing and company expansion, but also some energy price potential because there may be more reliance on untapped local natural gas and oil in the US rather than buying it from somewhere else, which may actually reduce inflation. So some competing effects there. If we look at the flow on, particularly in terms of tariffs and what it's going to mean to us here in Australia, as I've touched on the Chinese drop in exports, given that a third of our exports from Australia goes to the US, that is likely to slow the Chinese economy. And if there's less need for Australian resources, that's going to slow our demand and pricing for resources and agriculture, and that will, in particular, affect WA and regional Queensland, where most of those resources come from, which may mean some sort of wage stagnation and a bit of growth and unemployment in those areas, which means less confidence, which means potentially the handbrakes on the slowing housing sector in those locations. Now, the other exercise that I want to touch on is the local immigration story because it's been

Starting point is 00:39:20 in all the papers this year. I think that's going to be an ongoing lift factor that will help the property equation because we've actually seen a bit of a post-COVID migration catch-up given that the borders were closed for an extended period of time. And we're seeing migration numbers sort of calm back to sort of 240 odd thousand, but still strong. And we need about that number of houses a year to compete ongoing, but we're only building about 170 to 180,000. So a bit of a widening gap, putting upward pressure on house prices, but I'm going to touch a little bit more on that later as well. The other thing that's coming up more at the local level from an economic perspective is the good old election year where we need to have a federal election by September

Starting point is 00:40:08 of 2025. And we're likely to see a lot of ball lollies being thrown around and some pretty harebrained schemes that always emerge at this time of the cycle. And that's likely to be a bit of a drag factor on confidence and therefore property conditions. Because the uncertainty that goes with that, whether we're going to have a change of government means generally a fair bit of hand-setting, and I think there's likely to be a big cost-of-living backlash, given that we're seeing that happen not only in the US, but most advanced economies around the world, which means I'd be pretty nervous as I was Albo and the Labor Party, because rightly or wrongly, when people are feeling the pinch in their hip pockets, they normally

Starting point is 00:40:54 blame the government whether they're responsible for it or not, so it could be interesting from that perspective. And what's likely to happen, there's going to be a lot more talk about housing affordability, particularly in the media, given that the media now owns a big chunk of domain and realestate.com. So given that each and every one of us lives in a house, the best way to engage us and to keep us focused on the media is to scare the hell out of us because any negative changes to property make good headlines and continue to get their sponsors to throw advertising money at them. So I'll be expecting a whole bunch of reactive,

Starting point is 00:41:34 harebrained housing schemes being thrown up that are likely to be more of a cut off your nose to spite your face policies that we've been currently seeing. And we're likely to see some of the madness coming from the Greens with a continued talk about negative gearing and clipping capital gains tax. But given how important property is to each and every one of us and the government knows that, it'd be a pretty foolish government that would be brave enough and stupid enough to start playing with those exercises. So I'm not likely to see much change

Starting point is 00:42:07 happening there, but we're also likely to see investor restrictions being thrown around like they have been with land tax and restricting Airbnbs, but very few of those likely to get up. So again, caution, further softening of growth as a result of the uncertainty that's attached to those. Now, we're also going to be seeing ongoing changes with increased market-making activity from these high-profile buyers, agents and influencers that I spoke about.

Starting point is 00:42:43 But the market-maker hotspot shifts are likely to be away from WA and SA as they're starting to run out of steam. and we're already seeing a lot of these high profile buyers agents pumping Victoria and Melbourne because it's again looking comparatively cheap so be interesting to see how that pans out and the other thing that we're likely to see is ongoing increased price point concentration due to that capacity affordability restriction particularly in the early part of 2025 but an area that investors need to sort of look at and focus on is that we're seeing more baby boomers

Starting point is 00:43:23 going through the right-sizing, downsizing activity, because there's 5.6 million baby boomers that make up nearly 22% of our national population, and a quarter of those are downsizing in the next couple of years. So that's going to affect property conditions, particularly in lifestyle locations with low maintenance properties, but also free up properties for purchase by others. So a bit of a general summary of potential changes. I think we're going to see the pandemic afterburn peter out and a much more return to normal property conditions within the expected growth ranges. We're going to see more variable fragmented performance across locations and property types, which again is completely normal, and a slower rate of growth

Starting point is 00:44:14 generally. The interest rate reductions may be delayed and may be less over longer due to those increased uncertainty and slowing global conditions from Trump's isolationist policies and his erratic, inconsistent behaviour. And we couple that with the cautionary wait-and-see conservatism and then run up to the next year's 2025 federal election. So these are the influences that may or may not happen. And if they do, we don't know to what degree. So do we focus on maybes or is there another approach? Because successful investors focus less on what's going to change

Starting point is 00:44:55 and more on what doesn't change. They ignore the fear-filled short-term noise and focus instead on long-term timeless truths, principles and the underlying fundamentals. Now there's a great quote that really sort of sets up what we're talking about here and let me paraphrase. We all think we want an accurate view on the future, but what we crave is certainty. Now this quote highlights one of the key human desires that will never change. Instead of focusing on accuracy, focus on providing certainty. because the world and its many dynamics often swings on a pendulum between calm and crazy,

Starting point is 00:45:36 fear and greed, optimism and pessimism, etc. So to protect yourself, ensure you're clear on how much is enough for you to live the way that you love so the gap between your expectations and reality is as small as possible and you'll be much happier as a result. So if certainty is important let's now focus on what won't change firstly population growth and immigration now we've seen population growth of 634 odd thousand in the financial year to june 2023 that's down to 510 000 odd in the financial year to 2024 which is above the average of around about 376 000 over of five years preceding the pandemic, with $2.18 million over the next five years, which is roughly $436,000 a year. Now, a Resident Guardian article suggests that in 2023,

Starting point is 00:46:36 net oversized migration reached a record of $550,000, which was, of course, responding to the COVID close catch-up. Now, before COVID, net migration was projected to hit about $300,000 by 2025. But unsurprisingly, 168,000 fewer people related to the population between 2019 and 2024 relative to the long-term trend. And this was caused by 508,000 fewer people arriving during the pandemic lockdowns, as well as a post-lockdown rebound of 40,000 extra people through to March of 2024 but Australia's net migration is still 82,000 short of pre-pandemic levels according to a recent ANU report. So this is going to continue to put pressure on housing demand with 240 odd thousand migrants per year ongoing. Now on the flip side of this we're also seeing one of the

Starting point is 00:47:33 unchangeables being the scarcity around supply shortages. Now according to the National Housing Supply and Affordability Council, 169,000 households are actually currently on the public housing waiting list, with about 122,000 experiencing homelessness. And nationally, we're somewhere between 250,000 to 400,000 houses short right now. So this is likely to get worse, not better. And scarcity is actually good for investors, as it creates upward price pressures in low-supply, high-demand areas, but of course, it's not so good for homebuyers. Now, this under-supply means that we currently need about 240,000 new dwellings a year. Now, at peak, we've only achieved, and that was back in 2017, we only achieved 224,000

Starting point is 00:48:28 houses. in 2023 we only built 172 000 dwellings and we're currently at around 180 000 so in simple terms we're actually getting worse by about 60 000 houses a year and the government's housing fund is sadly going to be way too little way too late to make a meaningful dent on any of this as the housing train just gets further away from the station why because we won't be able to build enough for the right type of homes in the right locations to do any major damage to it. Now this has been conflicted of course by ongoing construction challenges where we're still seeing builders going bust and it's been projected that there's a lack of building labour around

Starting point is 00:49:15 about 90 odd thousand in terms of a short pull. We're seeing construction prices have risen 40% since COVID, and they're taking roughly 40% longer to build. So in simple terms, for many, building is just not profitable. And of course, that means that existing properties are actually cheaper for people to buy. Now, the government is throwing some board lollies at this in terms of tax incentives and stamp duty exemptions, particularly for high-rise apartments in the city and this is occurring in Melbourne and elsewhere but sadly I just don't think it's going to move the needle as those projects quite often don't stack up from a profitability perspective for private developers and they're also the wrong type of property in the wrong

Starting point is 00:50:03 location so this is just from where I sit just another case of trying to put lipstick on a pig because you can try and cover excrement with hundreds of thousands but it still smells and tastes like. Yep, you guessed it, S-H-I-T. So again, this growing shortage, particularly for houses, is great for investors. And if you're focusing on growth, I wouldn't jump on the bandwagon of those that are actually pushing strong growth in units and apartments in recent times, because this is just another affordability-driven short-term price catch-up that I don't think is going to persist. And it's often being pushed by spruikers and unscrupulous buyers agents with a vested interest in selling them to you to help bear bottom line, not yours.

Starting point is 00:50:45 So overall, we've got a growing demand and reducing supply, and the increasing gap creates great growth opportunities for investors in high demand, scarce supply locations. So bring it on. Now to summarise the property conditions generally, and considering that scarcity piece between supply, demand and sentiment in the context of lift and drag indicators, we're seeing a slowing economy which is a drag we're seeing lowering inflation which is sort of neutral interest rates reducing slowly and marginally which is a uplift factor price growth slowing and returning to normal fractured locational specific variation which is provides much of a much more opportunity for us but it also means that we're going to have to work a lot harder

Starting point is 00:51:34 to uncover growth areas and opportunities as many areas like to actually come back five to ten percent align with that S-curve of growth that I spoke about, and then potentially flatline for extended periods unless those areas have strong future growth drivers, which I'm going to expand on shortly. Now, what this means for you and property investors, from where I've sit, it's never changed. We need to plan for the worst and expect the best. So instead of trying to predict every way the world could break, we need to create an investment portfolio that's based on what won't change and what can withstand a variety of unexpected economic storms. In simple terms, you just need to give yourself plenty of TLC. And I'm not talking about tender loving care. I'm

Starting point is 00:52:20 talking about embracing time, leverage, and compounding. So in terms of time, time and time again, you need to be investing for 15 to 20 years or more. Leverage is about leveraging other people's, or leveraging OPM as I like to call it, so other people's resources and other people's money, and compounding, or the power of compounding, is what Einstein called the eighth wonder of the world. So on average, at 6.8% compounding, a property's going to be doubling daily every 10.5 years. So if you were patient and persistent enough to slowly grow your wealth and property over any 20-year period in the last seven years, you would have been rewarded with a 700% return on

Starting point is 00:53:06 average and had a 0% chance of losing your money. But sadly, most investors are too impatient to follow this massive upside and minimal downside strategy because they try to compress that natural 20-year-plus investment window. And there's a great anonymous quote that really captures this. no less than 90% of all investing blunders are caused by investors trying to compress this natural time horizon. A good summary of investing history is that property pays a fortune in the long run but seeks punitive damages when you demand to be paid sooner. So given all this the question you need to ask yourself when investing isn't what's the best return I can get this year but rather what's the best return I can sustain for the longest period of time and then you just

Starting point is 00:53:58 structure your property so you can afford to hold them through thick and thin over that long term for example one of the first properties that my good wife Sonia and I personally secured way back in the 90s that only cost us 84,000 bucks and yes we spent about 130 grand on it over the time and really giving it a facelift so let's say it cost us 215 on grand that same property 25 years later is now worth a bit over 1.5 million so time is definitely your friend because that allows compounding to do it you just need to make it affordable to hang on to so i really want you to embrace time and and don't treat it as your enemy and don't fight against it and then enjoy the journey because over that time frame, you just don't need to

Starting point is 00:54:49 try and pick tops and bottoms, which I think is actually a bit of a mug's game. Now, the ways to help you do this, of course, are to invest in a number of diversified growth properties that are cashflow affordable. So you diversify by location, property type, price point. And a well-known investor, Ray Dalio, in one of his recent discussions talked about discovering that a portfolio of diversified assets can actually reduce your downside risk by 80% while still producing very good long-term average returns. Secondly, you need to have more of your portfolio in safe cash flow affordable properties. So when the world unexpectedly breaks, which seems to be happening every 10 years or so, you can still sleep at night and don't feel the need

Starting point is 00:55:36 to knee-jerk react or panic sell prematurely. Thirdly, you really need to make sure you've got a very decent war chest rainy day reserve. Now, this means having a minimum of six months of your costs in readily available cash or in offset accounts as a rainy day reserve war chest contingency that allows you to take advantage also of these once-in-a-decade property opportunities when economic shocks do occur. Also, with softening growth, we may need to become more active to manufacture value in property in the days ahead, given that the rates of growth are actually getting back

Starting point is 00:56:14 to where they always have been. And this means that for those that have the skill, time and ability, cosmetic renos, adding a bedroom or splitting titles and redeveloping is going to become more important to increase the value. But you also need to focus on areas where they're going to experience future growth drivers, which are going to be way more important than ever, particularly with these slow property conditions. And quite simply, and I'll expand on this soon, you just need to remember focusing on the future three I's of growth, which is new

Starting point is 00:56:50 committed infrastructure, new industry diversity, and strong and growing incomes. So infrastructure, industry incomes. Now, the implications on what, where, how, really clearly, I just, before diving into that, want to really emphasise that properties are not a one-size-fits-all exercise. Your particular property approach is dependent on a host of internal and external factors that include your end lifestyle goals and the passive income level that you need to fund them. Your investment horizon, preferably 15 to 20 years or more. It depends on your borrowing capacity and purchase power, your cash flow affordability in terms of how much per week a property will actually cost you when you factor in all the cost to buy and

Starting point is 00:57:39 then hold a property. It also needs to be determined by the time you've got available to put into your investing, as well as your knowledge and skill, along with the team that you surround yourself because these all drive your resulting property strategy whether it's focusing on growth or cash flow as well as what to buy where when and how and in what structure it's why our know-how team help you define your gps in terms of your freedom numbers supported by your bare facts first so that you're clear on what you want to do what you need to do and what you can do before pursuing the best property tactics to achieve your goals because this is what the 5% of successful property investors do first, while the 95% just focus on the property

Starting point is 00:58:23 and wonder why it doesn't work. So what you buy where needs to be driven by your investment timeline in particular. For example, if you're investing in that 15 to 20 plus year timeframe, where it's not so critical in terms of location, as it's likely to go through the full growth site circle over this time and therefore doesn't need to be in a position where you need to pick tops and bottoms unless you need quick equity uplift for your next property. But you do need to focus on scarcity in a property and make sure a property has owner-occupier X-factor appeal, because I see way too many investors just focusing on investment grade property, which ticks those boxes, but you need to be thinking about who you're going to sell your property to when you

Starting point is 00:59:15 rationalize your portfolio years down the track. And you need to be selling to an owner-occupier who is buying with emotion, not with a spreadsheet. So I really encourage you to look at that. If a property doesn't have unique street appeal, an owner-occupier appeal, and looks like every other property in the street, then you're limiting your ability and crimping how much value you're going get out of that property. So for growth investors, which most of you will be, don't stop chasing these hotspot locations and then just buy what you can, like most buyer's agents actually keep encouraging you to do. But instead, I want you to start with defining your achievable and affordable spend for a three to four bedroom home, which is the sweet spot of demand. And

Starting point is 01:00:06 then data search nationally for the highest growth potential area that's about to experience those positive growth drivers of the three I's that I just touched on. If you're investing for less than 10 years, then you're really going to need to manufacture growth as a very active investor because you're going to have to be able to buy below value. You're going to need to have the skills to do cosmetic Renaults and additions. You may need to be looking at subdivisions and redeveloping the property and flipping may be what you need to consider in terms of buy, reno redevelop and sell so that requires a lot more time a lot more skill and potentially a lot more equity to make that happen but that's what you're going to be faced with if you're trying

Starting point is 01:00:45 to make it happen soon so ignore the negative noise from media and the FOMO from the buyers agents and the property podcast influencers who are becoming those property pod by market movers and makers that are herding fair driven momentum investors into these temporary top of the market hot spots that are about to become flat spots in a couple of years like Perth and Adelaide that have pretty much just about run their race because if everyone's already talking about an area it's already too late. As well I'd probably encourage you to avoid looking at some of those overcooked areas on a similar basis in northern regional Queensland particularly where there's extreme weather risk zones that are creating insurance risks and instead I really encourage

Starting point is 01:01:33 you to become a contrarian investor so you need to strap on your future vision telescope not your rear mirror microscope swim against the tide and then fish in quieter ponds that have strong underlying fundamentals that others are ignoring or downplaying and may even be experiencing negative media but they are evidencing these forward growth indicators of what i call the 3is and 3p so yes in in infrastructure industry incomes supported by population purchased power and property ratios like regional growth corridors and hub distribution centers with critical mass populations over 25 000 so don't go for small towns and make sure that the area has a maximum of 25 percent of renters because otherwise that would dilute growth and make sure there are any

Starting point is 01:02:23 areas with great lifestyle amenities with limited housing supply and strong accessibility infrastructure that are also internet enabled where new diverse industries are growing along with strong and growing incomes so that people can continue to pay more for properties in those areas as the value rises. Also make sure you slipstream behind those baby boomers or right sizes that I spoke about, given the associated work from home movement that's pushing up demand in those really good lifestyle locations. So areas that may be worthy of your investigation include some of the regional distribution growth corridors in Victoria, New South Wales, and in the not so resource reliant Queensland regions and also have a look at the where the new infrastructure is going and

Starting point is 01:03:18 this is all available for free on the net so the inland rail has a number of major distribution centre towns that are not going to be whistle stops so that will potentially create some growth also jump on some of the infrastructure sites to look at where all the new freeways and rail upgrades are heading, along with the fast train centers that's being developed between Melbourne and Brisbane over the next few years, because they will be the ones that provide some pretty good opportunity. But whatever you do, I want you to create your own economy and property, because the bigger property problem that you solve, the more money you're going to make. And as long as people need to live in property, there's going to be lots of opportunity for you

Starting point is 01:04:03 to do well. So focus on scarcity as the key bit. So to summarize, don't be a memento investor, become a contrarian by pursuing property scarcity and solving problems by adding and creating value. So location, property type, and value add potential are going to be increasingly important in line with those committed three I's of new infrastructure, industry diversity, and income growth, along with the three Ps. And that pretty much brings me to the end of where I think we're likely to see things happening. So if 2024's theme song's with David Bowie's Let's Dance and Justin Timberlake's Can't Stop the Feeling, then 2025's will be a Joe Cocker rendition of A Light of Shade of Pale, along with a theme for the movie Back to the Future. And if I'm showing my vintage

Starting point is 01:04:57 taste in music check them out on spotify and that wraps up my thoughts on the year that was and the year that will be so if this has engaged your interest and you want to explore what's right for you across your strategy finance or property needs or if you have any burning questions feel free to reach out to me and my team at know how property finance strategists by clicking the link in the show notes or going to knowhowproperty.com.au and hit the purple appointment button to book in for a personal solution session with me so that we can help you to make better informed property and finance decisions

Starting point is 01:05:29 along with reviewing your strategy and creating one. Or to find out more about how to do property properly, join me on our recently released Freedom Formula program that goes through the fundamental success principles of the why, what and how of property by again clicking the link in the show notes where you'll get free access to the first module and you can listen to it whenever and wherever you like.

Starting point is 01:05:55 So thank you for your ongoing support. Hit me up with feedback on what we can do better or what you'd like to hear more of here on Get Invested by emailing me at hello at knowhowproperty.com.au. That's hello at knowhowproperty.com.au. And again, I'll have that link in the show notes because I'd really love to hear from you. And in closing, remember to always get invested

Starting point is 01:06:18 in your knowledge and your network before you get invested in property. Thanks for tuning in to Get Invested on the Property Hub podcast channel, your home for property investment insights and inspiration. Make sure you subscribe to Property Hub for free. Get your weekly dose of Get Invested inspiration along with every episode of Realty Talk, Australia's top online property show for red-hot property investing news and insights direct from industry leaders and influencers. And finally, I'll see you next time.

Property Hub - Investment Insights & Inspiration - Get Invested: Property boom or bust in 2025? With Bushy Martin

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