Property Hub - Investment Insights & Inspiration - Realty Talk Vault: This is a more “efficient” market

Episode Date: March 8, 2023

We bring you another classic Realty Talk episode from the vault, which was originally published on May 20, 2022, but is still just as relevant today. Louis Christopher has always presented an interesting and sometimes challenging view on the property market.  His outlook is influenced by the data he has access to through his company SQM Research and for that reason he has been a regular guest on the show – always telling it as it is.  He does not disappoint in this interview with Bushy and Kevin as he looks back over the last decade and ahead into the future. RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media.  Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

welcome back and we're delighted uh in in this part of the show to welcome another one of our very regular guests over the last decade louis christopher from sqm research g'day louis how you doing g'day kevin nice to see you once again yeah mate and they said it wouldn't last but uh you've been you've been with us almost since day one louis and um giving some tremendous insight into uh you know market statistics i've always admired i mean so many people now talk yours your reports are like benchmarks for where the industry's headed so bushy one of the things I've spoken to Louis about over the years too is his ability to pick up on trends nice and early and that's one of the things I think data gives us. Hey Louis can I just ask you before we launch

into this what are some of your early recollections about you and I working together over the years what do you remember when your first interview was? I think it was sometime circa 2010 and And one of the things I recall, and I think it's a great credit to you, Kevin, is that, you know, I've been somewhat cautious in terms of who I do interviews with. As you're well aware, I like to try and, as best I can, call a spade a spade, whether the market's coming up, whether it's going down. And generally, I remember first speaking with you, just checking you out to be sure that you see the world in the same light too. And, and that's one thing that I've really enjoyed over the time is being not afraid to call it straight, whether it's up, whether it's down. And I think we're all on the same page of what's important for investors nowadays is to find out exactly what's going on, the good, the bad and the ugly. and I think that's what has happened with your program over the years just calling it straight that's so important and I've always had a strong belief as I know both Bushy and yourself have

that it's really important to have a transparent market so people can make better investment decisions and it's better for the industry as well. Yeah I can say as both a listener of the show for many years and enjoying your conversations and then more recently having the privilege to host louis that what what i love about what you do is that you're often happy to say what many in the industry won't and you call a spade a spade we hear the truth directly from you not not the the spin or the or the sensationalism that we see from many other commentators and And that's the thing that I've enjoyed the most. But tell me, Louie, over that last 10 years of the show,

a bit more that the show's been operating, what has changed in property investment during that period? And what has influenced those changes as you've seen it? Yes, enough of the good words. Let's get into the loathing. Look, what's changed for property investors over the years? Well, there's certainly been more information. being able to be provided i think when i first got into involved in the industry actually way

back in 2000 really the only providers of information at the time were real estate institutes um and maybe one or two small providers such as rp data it was known at the time which they would just focus on queensland only home price guy which i originally worked for which which was only focusing on New South Wales. So I think what's changed for investors and all home buyers and home sellers is a peripheralation of information over that time. It's definitely advanced, it's increased. But sadly with that, it's become quite confusing

because there are our sellers providing data, there is CoreLogic providing data, there is Domain providing data. Then there's a whole bunch of smaller outfits now that are on the scene. They're providing their take on the market. And so it's become, I think, a little bit confusing for investors in terms of what is actually going on. So that's one of the challenges for investors. But that said, those who do their research and understand the market and get some experience at it, there are some great opportunities. I think overall, too, the market has become more efficient in a similar way that the stock market has become.

I think gone are the days where sellers can convince someone to pay 20% over and above the market, and I think the days are also gone where buyers think they can get a bargain 20% below the market. The market is the market, and with the additional information out there, a lot more buyers and sellers do understand where things are at right now. Yes, extremely well said.

Yeah, it's a really important point. I was just making a note there about what you said about that ability for people to buy under market, because that's still a goal. I mean, many people look at off market sales as an opportunity to get in early and maybe get a bargain. But it goes back to that earlier point, Louis, that you made about the amount of information that's available. It's a plus and a minus because it can be too much information that makes it really difficult to make a decision. Absolutely. There can be too much and it can be very much conflicting information. I mean, you know, without us going a lot into, say, auction clearance rates. As you know, we have our own auction clearance rate series out there. CoreLogic has their own auction clearance rate series.

so does domain and and all three of us are saying different things about the market it's the ability of everyone to collect the same similar data i mean if everyone was collecting the same data the results would be the same true kevin but i would also argue that methodologies are quite different yeah yeah that's right yeah and and those different differing methodologies can give quite different takes on the market and louis what have been your top takeaways over the last decade in terms of the market um oh i think in terms of outperforming areas uh over the past decade sydney would have to be up there in terms of an outperforming area tasmania has also been an outperforming state where investors have done well over the past 10 years or certainly since

2015. The market being more sensitive to interest rate movements is definitely something that we need to consider, as well as increased intervention in the marketplace in the form of, say, the Australian Financial Regulatory Authority, who from about 2014 have been interested in trying to restrict credit where they think that things are getting too bubbly or loosen access to credit when they think it's it's more safe to enter into the waters so I think they are some of the takes the market overall being more sensitive to these big macro moves as opposed to what's happening locally I think we've seen that of course your individual regional townships they're they've been up until covid more um sensitive to what's happening to those

to those local economies uh but since covid um have been swept up in the in those macro movements uh and you know this is the this is one factor i'm keeping a strong eye on in terms of what's going on with regional australia uh the local the the regional australian housing markets um i see grand opportunities and i see grand risks uh that they've historically been very volatile we all know that nearly all boats have gone up uh with covid and i just have some concerns that subsequent to covid many of these boats will go back down again yeah it's very good point well it's a great segue into uh starting to look into the future then louis yeah what do you think are to be the likely impacts of some of these trends you're seeing on the property industry and property

values over the next five to ten years the number one key trend to watch for is housing formation that the number of occupiers per dwelling normally and historically it's been a fairly stable number over a hundred years we have a gradual downtrend to less people per dwelling all of a sudden COVID's come along and we've seen a dramatic decline in the number of people per dwelling because people have been looking to live with less people. They've been looking to live in regional Australia to get away from lockdowns, to get away with COVID,

get away from COVID. Could we now see a reversal of that with the general view out there now that COVID's largely behind us and nothing to be greatly fearful of? and especially with the dramatic rise in rents could that encourage entice force people back to living with each other again and as a result of that what will that mean for uh the performance of say freestanding houses versus units what will it mean for the performance of regional housing versus capital city housing prices.

These are some of the big demographic waves that have occurred in such a short space of time. And I do think that there will be some type of reversal, but what I can't tell you is the magnitude of that reversal. Maybe it's already starting to reverse now. And maybe what we will also see is a grand opportunity for the regionals, that if we don't see a complete reversal where more and more people say, you know what,

I like living in regional Australia, I'm going to stick it out, I'm going to make it work, and I'm going to help grow this local town, which I dearly love, I think we will see an element of that. But over the short term, as mentioned before, I think there are risks, and the risks are that given the huge jump in housing prices in many regional australian townships even just a slight change or downturn in demand could see a quick fall in those

prices and in home buyers of today need to be wary of that and there are priesthoods and all this yeah consider the town of karatha of course a grand mining town if there ever was one on the northwest shelf yeah karatha housing prices back in 2002 was circa two hundred thousand dollars in 2011 they were effectively a million dollars and then in 2016 they fell back to three hundred thousand dollars okay you wouldn't want to be on on the wrong end of that downturn and the problem is is those type of massive swings could happen in other regional townships given the boom in demand we had due to COVID that is the risk now I'm not saying it's playing out right now I couldn't point to a regional township right now

where we're seeing a sudden collapse in demand not seeing it yet I'm just concerned about it and I think home buyers right now need to be cautious all these big movements that happen in regional australia that is such a good that's such a good point you make sorry bushy um you make there louis and i wanted to dig a little deeper into that if i could because you know based on what you've just said and i think that's a key message out of the show based on what you've just said how how should we be preparing for that well you know what what should we be looking out for the leading indicators that will tell you having a having a chat with agents on the ground that you can trust that will help.

You know, just watching the listings. So I first noticed a downturn starting to occur in Karratha when there was a sudden surge in listings. When rental vacancy rates started to pick up, you see it in the rental market first in these regional townships because it represents, you know, the rental market represents really the the the forefront of the market in terms of what actual accommodation demands going on is it is accommodation demand increasing or is it decreasing you normally see it in the rental stats

first yeah i think in the mining towns we noticed that very much when the mining companies started to build their own accommodation which took the need off for private accommodation you know the rental market yes yeah so that that was a that was a bit of an indicator i guess that's an indicator but when they did that the the demand for rental accommodation had already peaked okay right um and so you know there were these just dramatic falls on rents and it fed through into housing prices for the local area about six months afterwards and i think we'll see a similar thing in in some of these regional townships now i think there'll be areas which will not be necessarily affected um maybe coastal regional areas i think they'll probably hold up better

now we're talking overall about this short-term massive wave in terms of the demographic i think long term there are grand opportunities for regional australia we need we need as a country to invest into our regional townships there's too much reliance on our economic welfare for the big capital cities and i think long before the three of us long after the three of us actually leave this planet we will see these regional townships grow and prosper just like what happened in the united states throughout the 19th century in the 20th century it'll happen here australia well it has to it has to and there will be great opportunities over the long long term you just need to watch out for the short term that's all yeah very good point i've heard a

number of commentators talk about the some of the driving criteria that will separate the winners from the losers in regional hubs have been around the critical mass of population in that location the diversity of employment and industries and strong and growing incomes that can continue to support increasing prices where the committed infrastructure and their technology there technology actually enables people to live and work in in more rural locations what's what's your rate of all of that willie absolutely spot on i think without wi-fi um the internet being able to reach into regional australia and remember and we still have it today uh there are there are massive black spots in regional australia in terms of internet but a number of the key townships now

have it and that's helped tremendously when remember back when we were growing up in regional australia my goodness many regional townships didn't even have television you know So we're coming a long way, and we're having good internet now in many regional townships. This will help the local population stay and not be as transient. They'll stick around because they see grand opportunity within these townships and growing populations. So definitely this has helped.

And I think we will out of this, I think one thing that is a permanent change as a result of COVID is the working from home. Now, I know that there are many employers who want to see their workforce come back into the office. As an employer, I'm asking my employees to come back into the office, but not full time, not five days a week. I'm asking them to come back three days a week and then two days working from home. Now, that can work for someone who wants to work remotely. It can still work. So I think that permanent change is going to help these regional locations. That's a good insight, Louis, as we would have expected anyway, mate.

But we've come to the end of our time together. But thank you so much for, firstly, your support for our show over the years, Louis. And it's always great talking to you, mate. I appreciate it. and all the best for you with your reports through SQM, of course. Oh, thank you so much. I feel like we've only just touched the iceberg today. Yeah, I know.

But remember, Louis, we're going to be talking to you in the future. This is not the end of the story, my friend. No, absolutely. I know you can bring a lot to the table. And obviously we should have a good chat about interest rates on another session for your audience. Yep. Okay, well, let's make that the next one.

We can lock that in for sure. Louis, good on you, mate. Thank you. Thank you, Bushy. Thank you, Kevin. Thanks for your time. And that's where we're going to come to the end of the show. Stick around.

Louis and I – sorry, not Louis. Louis has got to go. But Bushy and I are going to stick around and just give you a summary on some of the key points out of this week's show. Stick around. Back in just a minute. We'll be right back.