Property Hub - Investment Insights & Inspiration - Realty Talk: What is driving the growth and will it continue?

Episode Date: January 28, 2022

What’s driving property growth, what regions will continue to outperform and what changes are likely to impact property markets? Arjun Paliwal of InvestorKit buyers joins us to reveal his projections. Buying interstate is not as easy as it sounds and can come with significant challenges.  Katie Richards, from Virtual Legal explains how she is helping meet and overcome them. Just like we approach our personal fitness, there’s a proven process to getting your property investments into shape to achieve peak performance.   Luke Harris of The Property Mentors opens our eyes to the opportunities. After massive growth last year, what does the future of commercial property look like? To put some balance back into the commercial property discussion on what’s likely to happen this year, we’re joined by commercial buyer’s agent Scott O’Neill of Rethink Investing. RealtyTalk is your trusted voice in property investment and Australia’s most popular online property show.   RealtyTalk is brought to you by Realty, Australia’s leading search and social property distribution platform that helps investors like you beat the crowd, giving you the earliest access to property opportunities, listings, and insights. Check out Realty. RealtyTalk is hosted by top property investment expert, author, and founder of KnowHow Property, Bushy Martin. Find out how Bushy’s KnowHow team helps investors unlock freedom with finance and property here, and check out Bushy’s podcast Get Invested.  RealtyTalk is supported by BMT, a company that helps property investors save thousands of dollars each year by maximizing tax deductions from investment properties. Find out more. See omnystudio.com/listener for privacy information.

Welcome to Realty Talk, the show that brings together the country's most authoritative and respected property experts. Follow us on all the socials and subscribe for updates and exclusive offers. Realty Talk is powered by realty.com.au, connecting buyers, sellers and agents differently. Hi and welcome to this week's Realty Talk show, your trusted voice for all things property. I'm Bushy Martin from KnowHow Property Finance, and we've got some more great property gold to share with you today. To kick things off, we take a look at what's driving property growth, what regions will continue to outperform, and what changes are likely to impact property markets moving forward. And to do this, we have a chat with Arjun Palliwal, an Investing Kit Buyers

Agent, who joins us to reveal his projections. Are you experiencing significant challenges or concerns trying to purchase properties in the state? We'll discuss how you can overcome them. Katie Richards, the CEO of award-winning law firm Virtual Legal, reveals her secrets. How property fit are you? Just like we approach our personal fitness, there's a proven process to getting your property investments into shape to achieve peak performance by adopting alternative investment strategies and Luke Harris of The Property Mentors opens your eyes to some of these opportunities. And to conclude the show, after a massive growth last year, we take a look at what the future of commercial property looks like. To put some balance back into the commercial

property discussion on what's likely to happen this year, we're joined by a commercial buyers agent, Scott O'Neill of Rethink Investing. We've got a lot of insights to share, so let's get on of the show. Greetings and welcome. Well, it's fair to say that you'd have to be blind Freddy not to appreciate that Australia is in the midst of a once in a generation national property boom, with the combined capitals growing at an average of 19.5% over the last year. And even more impressively, combined regional areas are leading the charge with an average of 23.1% in the last 12 months, according to the latest CoreLogic figures, which compares with a long-term average of about 6.8% growth a year.

So what's driving this incredible growth? What regions will continue to outperform? And what changes are likely to impact property markets moving forward? To discuss this, I'm joined by Arjun Palliwell, a successful property investor in his own right and founder and head of research of data-driven buyers agency InvestiKid, as well as market research innovator, The Property Nerds. Welcome back to Realty Talk, Arjun.

Great to be on once again, my friend. Always, mate. You've got such a good spread as a personal investor and the fantastic research work that you do. So as a buyer's agent, we know that you work with a quite diverse array of clients. What has the buying activity and sentiment been amongst investors over the last 12 months? I feel that there has been the sense of FOMO in terms of missing out and seeing everything move so quickly.

when I think of you know something that's quite unique to this property boom has been properties that we would look online or offline for clients and typically pass on knowing that they will take longer to sell for reasons like flood bushfire main roads too close to industrial precincts or other things that can lag days on markets particularly when selling in I guess opposite at times like this, we found that they were still rapidly selling. So it's clear that a lot of people are making decisions that typically they wouldn't make had the times not been like they are. And so I guess looking at that, I can understand why the clients that we're working with start to look at it and go, hey, I really just want to buy something tomorrow or next week, because they're seeing even

those types of properties go. So I think this time is very unique to where we need to stay on course and focus on what can happen in terms of the positives of a property boom, but not lose sight that it's not the next two or three years only that make up your life of investing. It's the decades ahead of that. Yeah, very good call. So what are some of the regions that you're seeing

with huge potential when you've been assisting clients to purchase in? Yeah, so I guess what makes it very difficult right now is the last data rerun that we did ending September had seen 96 or 97% of markets still positive trending. So this is very, very unique. But when it comes to regions, I love to classify them across various categories. And I can give you a couple examples in each of them. So I love to have a category called early adopter markets. They're markets where we've seen no huge 10-year movements, but the last 12 months bring upon movements and

pressure indicators and local economic activity that suggests that the one-year data is better than the three, the five, the seven, and the 10. Perhaps a new cycle. So this is kind of why we call it our early adopter markets. They carry pros such as earlier entry, greater rental yields, and sales agents are stuck in the, I need to sell fast mode, not I need to sell as best as I can mode just yet. Poor vendors for some of them, but in the case of our case being buyers, we get to swoop in quite early. Markets like Wagga, Toowoomba, Bundaberg, Harvey Bay are examples where they haven't had the absolute best last 10 years, but they come into some pretty solid numbers over the last 12, 8, 6 months. Other markets I like to categorize are what I call

hotspots. Hotspots sound really fun, but they have pros and cons as well. Again, they haven't had perhaps the best of 10 years which then make them even better from what could be ahead but I guess the cons of their entry point for hot spots which is that they are hot spots because they give us confidence they've been having good performance for longer than that one year typically they're moving one two maybe even three years places like Adelaide places like Brisbane are examples where they've been running quite strong now for a year to two so there's no doubt on their running strong and hence why you miss out a little bit on the way in but you feel a high sense of confidence and there's some markets the final piece of the markets the third category is what I called my

second wind markets they're markets that are proven over the last 10 years but again we don't judge the last 10 years as what's ahead they're markets that seem to have some structural shifts that lead us to believe that they are going for another run or have been in another run where we We should not only assume their growth ahead, but also ignore at times the last 10 years because it's not the same conditions that they're fighting versus what they were the 10 years ago. Central Coast comes under these categories, Coffs Harbour, Port Macquarie, the Mornington Peninsula.

These markets have had phenomenal 10 years. They've been attached to their major cities or their own economies, but they're separating themselves due to another structural change. So a lot of movements, a lot of strength, but with categorization, investors can better see how it fits their portfolio. Yeah, I love that classification. And it puts it in context in terms of the timeline and the various passions and needs and desires that investors might be looking for and overlay that against their own risk appetite. So I love the way you're looking at that. Now, on the demand side, of course, we've just seen APRA step in and the major banks landing policies are actually set to change from November, particularly in relation to lifting the bank servicing rate from 2.5% to 3%.

So have you seen any changes in buying activity amongst investors or as a property investor yourself as a consequence of this? I have seen a bit of a dash for those who have a little fear that comes with some changes thinking that it may not be the first change it might be one of many or it may impact their personal circumstances a little bit more than the generic view of the policy so my generic view of the recent APRA announcements is that there should not be a large change there may be some slowdown because credit always feeds the pipeline of housing performance but in saying that the fact that many investors are dashing towards it, they have to be mindful of, you know, not rushing the asset that they pick up for the sake of it. Also, they tend to be investors who aren't quite as

widespread to thinking of just outside their backyard. Because if you can't do 650, and you could do 700, there might be 600 and 500 options that are plentiful outside of the city they're looking in. So that's kind of what I'm seeing at the moment. But having a look at going back to, you know the last time a round of APRA changes came through it's important to note that not all our markets reacted the same and this is the key to those who are borderless investing you're likely to still find some gems that aren't going to feel the same way as another market would that's more sensitive to it yeah very good call and and the the other exercise to widen the scope of opportunity is not just to focus on the the big four banks because they are the ones that have been directly

affected by APRA at this stage. There's 40, at least, other second tier lenders and banks out there that don't come under the same jurisdiction. So there's still plenty of opportunity to optimize your borrowing capacity and give you the horsepower to still be able to secure really good properties. So some really good insights there. So thanks for these very data-driven insights again, Arjun, and thanks for your generous time on the show today. Appreciate it, Bush. Thanks, Arjun. Well, it's clear that if you really want to beat the pack

and give yourself the best chance of securing the right property in the right location at the right price, or in fact, to be able to secure any property at all in this current market boom, you need to give yourself an edge by engaging a research-driven buyers agency with a national reach. So feel free to reach out to Arjun and the Investor Kit team,

see how they can help you, and make sure you grab yourself a copy of their latest market report, which you can get at InvestorKit.com. Stay with us for more here on Realty Talk. for growth. KnowHow has helped over 1,900 homeowners and investors secure more than $800 million in property wealth. So get set to live more, work less, and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au.

Greetings and welcome. Now, in the current residential property feeding frenzy that's golf markets around the country. With the annual growth rate now tracking at the fastest pace since 1989, many buyers are experiencing very significant challenges when they're purchasing properties interstate. So to discuss how to overcome them, we're joined by the CEO of award-winning fixed fee online law firm, Virtual Legal, Katie Richards. Welcome back to the show, Katie. Good to see you again, Bushy. Absolutely, Katie. Now, Katie, there certainly are some challenges happening both for interstaters, but also those that are time poor, that are having real obstacles trying to get things

happening in the property sphere at the moment. So what are the challenges that these buyers are experiencing in our current challenging COVID times? Bushy, I would say it really comes down to timing of making offers, getting contracts signed. That seems to be the biggest issue because the part of the property market is so hot that by the time someone makes a decision to do something and then get starts getting organized they've missed the opportunity it's gone um and so we're sort of in particular detail we're seeing um people that are taking too long to put an offer in or when they're going to put their offer in they're having too many conditions around the offer they they're taking too long to go and get their independent person to help them with

this or help them with that and they don't have their team all in place ready to go knowing they're about to go and make an offer on a property um and so they're and even when it comes to the contract they're taking too long to get contracts signed sometimes it can take a couple of days whereas you do that now someone else will have another offer in front of that seller and it'll be signed and it could be a much better offer than yours and you're out of the market again so we're seeing a lot of that and also that they a lot of them don't have experience or an understanding of the current market and so without that understanding they could be signing off on things just to get the property and then not being able to fulfill those obligations whether that be finance whether you

know that that property could be in a in the middle of a flood zone and they're stuck with that because there's nothing in the Queensland contract that allows you to get out just because it's in a flood zone. So it's a lot of issues like that where they're inexperienced and they can't move fast enough. Yeah and that's a very good call. So how can they overcome these challenges then Katie? I think probably two key things really is number one making sure they have a very organized and a team around them and a team that actually understands not just the property market but specifically the property market in the state they're purchasing in so we do a lot of property here in Queensland that's where we are actually based even though we operate all over

Australia so we'll take Queensland for example what we're seeing a lot of here is that they're getting people that have a really good understanding of the market first they understand how the contracts work they understand the conveyancing process they've got all the right pieces of the puzzle around they've got their lawyers and their finance people and all those kind of things ready well before they even start looking at property and then they have also a power of attorney in place so in a situation where they're going to need to sign something quickly whether that could be the contract that could be loan documents it could be anything to do with that property you can actually have a general power of attorney which is called a form one in Queensland

and that would permit that person that you're getting to act on your behalf to you could give them a quick call, say, yes, please go ahead and sign this for me and then done. It's straight away, you get that done. So you could then go back into your meeting at work and not miss out on the property

or not, you know, miss out on the finance date or whatever it is to keep that transaction moving. Yeah, very good point. It's in power of attorney is a bit of a hidden secret there. I think in that capacity, Katie, and, you know, a real live example, we've just had some clients that are currently in Canberra looking to purchase a property in

Queensland. And of course, Canberra has been in lockdown. So when it's come to getting the finance documents signed in front of a JP or other appropriate person, they haven't been able to do it. So it's created a real challenge and that's got flow on effects in terms of settlement and all the rest of it so you uh given you know that real opportunity there to use a power of attorney to open that door how and where do buyers need to go to set up a good power of attorney katie yeah look they can actually find it online if they like um although they'd want to make sure they're actually completing it correctly um because it does need to be lodged with the land titles here in queensland and they're quite particular with how they do things so um there

is law on earth has a power of attorney form on there and it has a guide that explains exactly what to do how to do it how to witness it what you have to be really specific about when it comes to property transactions in particular under the land titles like in Queensland you have to make sure that the witness for the general power of attorney is either a justice of the peace a commissioner of declarations a notary public or a lawyer that's really important that's not generally the case for general powers of attorney only if they're dealing with land and here in this situation will be land even the property mortgage documents still linking to land now that document then gets linked to a form 16 that is like the registration form that goes on top of the

information and it gets lodged on land titles so when they would do a title search you'll also see this document so that it's on the register that there is an actual power for this other person to sign on behalf in relation to that specific lot so um yeah yeah that's brilliant that's a real opportunity that very few uh purchasers in my own experience have taken advantage of so i really appreciate you sharing those innovative insights again katie and thanks again for your time on the show today you're welcome thanks pushy thanks katie well as you can see if you're an interstate buyer or time poor and and pressured not to have the availability to things done, or someone that COVID lockdowns and restrictions are making it hard for you to secure

and settle on property, make sure you set up a power of attorney so that everything can be done for you by an agent on the ground. And if you want to know more about it, or actually get a power of attorney set up, reach out to the team at Virtual Legal, who can do it all for you online, anywhere, anytime. Stay tuned for more here on Realty Talk. Property deductions can save you thousands of dollars each year. To make sure you maximise deductions, you need to work with the most experienced quantity surveyor in the country. BMT Tax Depreciation is the leading specialist in the industry. They've completed over 700,000 tax deduction schedules for residential investment and commercial properties Australia-wide. BMT guarantee to find double your fee in the first

full financial year deductions. Call BMT on 1300 728 726 today for an obligation free quote. Hi and welcome. Now the property market's enjoying a once in a 30-year boom and for investors there's never been a better time to supercharge your portfolio. But just like we approach our personal fitness, there's a proven process to getting your property investments into shape to achieve peak performance by adopting alternative investment strategies. So to discuss this, we're joined by Luke Harris, author of his recently released second book, Property Fit, And he's also CEO of The Property Mentors. So welcome to Realty Talk, Luke.

Thanks, Bushy. Thanks for having me on. Yeah, really looking forward to digging into this, mate. And love your new book, having had a chance to dig into it. It's actually on the bookshelf behind me. You can see there in the pink slash. But Luke, to kick things off, people often think that the only way to make money in property is to actually go and buy one.

But is this actually true? well it is it is to a certain extent but there are other ways to invest in property that don't involve actually buying one a lot of individual investors probably not aware of the other things that are available to them okay so uh what are some of the ways that property investors can invest in property from your perspective yeah look i think there are different ways of investing and obviously there's different types of property trusts that are out there uh there's uh development lending, there's private peer-to-peer lending, there's other property-based investment strategies and I've been across these for quite some time now and I found out many years ago that surprise,

surprise, developers lend money to each other. If you've got a development project that's just finished up, sometimes a developer will have lots of money, they know other developers and they loan money to each other. It happens all day, every day. Individual investors will loan money to each other, companies loan money to each other. So I guess a lot of people assume that And the only way to borrow is to go to a bank. There's also a huge shift in lending these days and peer-to-peer lending becoming more and more popular. Yeah, it's certainly opening up the gamut.

And I think there's a lot more of that activity starting to happen than ever as a result of the fact that, you know, normal bank lending can be quite restrictive as a consequence of that. So, no, that's really interesting, mate. But a big part of the exercise that revolves around that is the element of risk. and it's often an area that gets underestimated. So can you talk to us about your view

of the importance of risk management? Risk management, I'm a very conservative investor. I don't take huge risks with my investing because I want it to work long-term. And I do take the approach of investing rather than gambling. And there's definitely two different pathways that an investor or potential investor can take. And these types of strategies,

There's different ways of investing in a property trust. You can have a listed property trust, which is on the stock exchange. You can go through your financial planner and discuss these things. Or there's private trusts. And I'm a part of a number of different property trusts that are run privately. They're not advertised anywhere. And people can get involved with much smaller amounts of money. You don't need millions of dollars.

You can start with $50,000 to $100,000, get involved in a property trust. And essentially, the trust will go out there and buy a bunch of properties. And those types of things are out there. Most individual investors just don't know where to find them. So I guess the key thing when it comes to risk is understanding how it fits in with your overall strategy. Again, going back to the property fit side of things, making sure that it fits your goals and plans long term, but also fits your risk profile and that you understand what type

of investment it is, how it's run, what the risks are, what can go right, what can go wrong, and also who's actually running that investment. the same way if you're going to loan money to another investor or if you're going to loan me some money to do a development for example you'd want to know my history and my background my experience you go through all of those checks and balances so it comes down to understanding the risk but also how it fits your risk profile in that a lot of individual investors may never have heard of other ways to invest in property other than buying one purely because they don't need to do that for some people they just need to buy a property build their portfolio other

investors want to get a little bit more a little bit more sophisticated and want to try different things yeah so in terms of because most people won't be able to assess the risk because they just don't have the knowledge or expertise to do that if they join you with the property mentors are you and your team able to assess a system in properly assessing the risk versus reward yeah i think one of the key things to that we do property mentors is to not so much tell you whether it's a good investment or a bad investment but teach you how to ask good questions so whenever you're reviewing any investment whether it's an apartment house and land package an old house that's you know renovators delight or whether you're looking at an alternative investment

strategy it's about understanding the investment before you say yes or no because if you say yes to something that you don't fully understand what could go wrong like a lot of a lot of things could go wrong but at the same time if you say no to an investment that you don't fully understand then you could be saying no to something that could massively help you for your investing plan and strategy so we always teach people understand the investment first because then if you say yes or no at least you've got all of the facts and figures in front of you and you're making an informed decision i've said no to many more investments than i've said yes to but at least going through the process of actually understanding and asking questions has actually taught me how to review the

next one better because I've gone through the process so many times and I think that's a key thing for investors if you're planning on investing for the long term and you should understand the process go through and review many investment opportunities because by doing so you're going to be able to ask questions around those and be better informed next time around yeah love it love it okay well just to close off then why would an investor want to pursue an alternative property strategy instead of just going out and buying one well a lot of people just can't do that a lot of people can't get finance a lot of people are not looking for a well not looking for a long-term commitment and they're looking for more of a short-term type of

thing and there's people that have just moved it back from overseas especially with COVID they've come back to Australia maybe haven't got the work history there haven't got the savings so they might have brought some money back with them but not really sure where they're going to settle down And yet there's also self-employed people that can't get loans. There's also people that have come into an inheritance, for example, but don't want to go and buy property. So there's a range of different people out there that are looking for investment opportunities that understand property.

They may not want to put it into other investments, but they may also not want to buy a property or even qualify for a loan. So whilst there are alternative strategies out there and they're available, it doesn't mean that they're going to suit everybody. However, as we said before, by understanding the investment, at least you can understand how and if it actually fits into your plan and strategy. Yeah, beautifully said, mate.

Well, I really want to thank you for opening our eyes to other property investment strategy alternatives, Luke, and thanks again for sharing your generous time on the show today. Yeah, thanks for your time, Bridget. Okay, well, as I've always said, if you're going to be a successful property investor, securing the actual property is generally the last thing you do because if you're not clear on your strategy

and where you're heading, then you'll never know if the property is actually the best mechanism to get you there. So if you want to develop the right investment strategy to suit your circumstances, grab yourself a copy of Luke's new book, Property Fit, at propertyfitbook.com.au. That's more food for thought here on your trusted voice for all things property, Realty Talk. Successful property investment is a game of finance. Do you have the right team and the right game plan realty talk is brought to you by know how property more than mortgage brokers bushy martin and his team of investment architects set you up with a sustainable strategy structured to lower your costs tax risk and stress while increasing your capacity for growth know how

has helped over 1900 homeowners and investors secure more than 800 million dollars in property wealth. So get set to live more, work less and live your legacy. Want to know how to invest in your freedom? Visit knowhowproperty.com.au. Greetings and welcome. Now, commercial property has copped mixed and quite confusing reports in recent times with the demise of CBD office and retail grabbing the headlines, while industrial warehousing has gained in popularity due to better relative rental yields. So what does the future of commercial property look like? Well, to put some objective balance back into the commercial property discussion on what's likely to happen in 2022, we're joined by a successful investor and commercial buyers agent,

Scott O'Neill, the founder of Rethink Investing, a BRW Fast 100 property investing company specialising in finding rare, positively geared commercial properties right across the country. So welcome back to Realty Talk, Scott. Thanks for having me back again, Bushy. Always like to enjoy your insights into what's happening in the commercial world, mate. But before we sort of dive into the year ahead, how do you feel that property performed against your predictions for 2021 and what, if anything, varied and why, as you say it? Well, 2021 was, look, it was all about growth for commercial property. So 2020 was more of a, I guess, a fear-driven market because obviously COVID hit the shores

for the first time in March or just before in 2020. So there was a bit of that feeling, what's going to happen next? Is the world over? There was all these articles from, you know, your big banks saying 30% market crashes and whatnot. And obviously that proved to be almost the opposite, exactly the opposite in many cases

because some markets grew by 30%. So commercial was no different. There was record prices. the low interest rate environment and uh and just people prioritizing investing over traveling or you know putting their money back into their house was was really the key thing saving habits grew so people were saving a lot of money through the pandemic of course some people lost their jobs and look it's not an equally balanced market as you know but uh you know those who were playing with property generally did very well 2021 was just almost like the

like you know if anything things sped up there was a lot of confidence driven by Australia's handling of you know keeping large quantities of the virus out so there was from an international viewpoint where it was viewed as quite a solid market and I know we've seen that on the cold face we've had a lot of inquiries from likes of Singapore, Hong Kong, even the US and places like tokyo there's a lot of foreign investors looking to invest in this country and it's off the back of the stability that we've shown and um you know obviously houses and commercial property they're still tied to land values and uh it's it's been a very strong market so and that's uh even the worst case office market is seeing record square meter rates so this media headline of

the demise of the office market is not eventuating in the prices that's for sure yeah really interesting. And that's often a big disparity between the media headlines and the reality on the ground. But well, that sort of sets us nicely to turn to this year ahead. What's your overall view on how commercial properties likely to perform in 2022? So the theme that has started coming out is the talk of interest rate rises. And ever since I started investing in commercial property there's always this cliff and it's a cliff created by uh it's mostly media or just people looking for a reason why the market will crash so you know there was the interest only cliff there was uh well covid was a cliff itself there was um there's always a reason why the

market's going to stop uh very quickly but um the talk of interest rate rises are on the cards and we've seen fixed rates increase but on the cold face it's not slowing demand up now the reason uh it may slow up from the i guess the ridiculous growth we've seen and this could flow into more of a residential comment it there's more supply coming on so more people are looking to capitalize on these high prices because if you bought a house and it's doubled in value in the last five years and it's not the perfect house for you it's a pretty good time to sell so now that borders are open um there's there's i guess there's a not a lot of reason not to sell if that was on the cards you're going to get a good price so supply might slow things down but the demand is still

there the demand is is is all like it's as strong as it's ever been it's just there's more selection now this is where it gets interesting for commercial the supply isn't increasing we're seeing stock levels so tight it's actually um it's to the point where it makes my life very hard like we're a commercial buyers agent trying to find properties and you know we're fighting over a very small pool of property so we really want more stock so there's more selection so until stock just jumps through the roof um you're going to see growth continue you're going to see yields compress further yep um and the reason there's not much supply coming onto the market why would an owner want to sell a high yielding investment in this economy there's nowhere to go like we are

commercial is the highest yielding asset safe asset at least available so if you're not in commercial property, you're in something else, which is probably more of a speculation type asset. And when you're dealing with millions of dollars, people generally don't go that angle. So the theme is, even if interest rates pop up slightly, I think it'll be slow and gradual and expected. Sophisticated investors will plan for these events. And if you're getting a 6% or 7% net yield on an asset and your interest rate's currently 2.5, and it jumps to 3 or 3.5, you're still really positively geared on that investment so it's not going to change your life so that's uh yeah recipe for growth i think and um unless stock pops up we'll uh it'll be sort of

more of the same yeah it sounds uh sounds interesting yeah so you've mentioned a couple of days already what what are some of the other key drivers that we should watch out for that are likely to influence commercial properties direction in the year ahead so yeah like i said So supply, investor demand, I think is going to increase from overseas places as borders open. I know, again, I'll probably use Singapore as an example. I've seen a major influx of investors coming from there and there's not many restrictions to invest in Australian real estate.

So FIRB approvals are almost just a given with commercial because it's not a sensitive asset like a house would be. Sure, if you go buy a marine port or something like that, there might be some extra regulations of who gets who's allowed to buy things but uh you're going to see more foreign money into the market that uh you know over a small supply of properties that could cause extra growth um there's the flight towards yield so we're seeing this is probably i think the number one theme for a business like myself we're seeing more residential investors now go well i've seen the growth in that residential market it's now squeezed the

yields so tight it doesn't make sense from a numbers point of view to go down that angle and i'm generalizing remember there's always markets where there's better yields than others but um yeah it is it is tight and that's pushing people to think about cash flow more so you're going to see more non-traditional commercial investors become commercial investors so that's um that's going to be a theme so that's why i think there's a lot of upside where are risks in the economy if there is huge inflation there'll be more pressure on the rba to raise interest rates quicker so obviously that will create a sentiment um downward pressure so even though there's a lot of people looking if you lose 30 of that volume that'll obviously

slow things down um it might give people more reason to sell as well if interest rates go up you might see supply just tick up 10 all these ratios will change around depending on what happens and and that's an unknown but um i'm like i said you i don't predict any any drastic changes because uh it's going to really hurt the likes of a residential market or the share market more than commercial um particularly the residential because it's higher debt percentage ratio so obviously there's fluctuations in interest rates over a lower yielding asset that that's going to hurt that side more. So, yeah, I think it's going to be a really interesting year,

but probably, yeah, they're the main growth drivers I see. There's no big immediate technology, tech changes out there that's going to just change certain asset class. I think office will rebound. I think retail is already rebounding. So retail is one of those ones that got, I think, tarnished a lot in the media saying you know retail's dead everyone could buy things online uh shops are going to have a bounce back because foot traffic's back out there's there's a pent-up demand to people

to spend at shops like i think you'll see some uh record numbers come out of retail sales uh over the over this christmas period so that's going to create a flow-on effect into the general economy which um we know we've been saving well so more money will be flowing through to the market and and that will be good for commercial property. Yeah, okay. So beyond the office and the retail component, what other important sectors should we be watching out for in the commercial space in 2022, Scott?

Industrial is obviously the one that's done probably the best. Like we're seeing growth rates of up to 20% per annum in some markets for the last two years. So there's some Western Sydney markets and some parts of Brisbane that have grown over 50% in the last two years. It's just in ridiculous numbers. And I think that's got to, at some point, slow down because it's going to reach the point where the yield

doesn't make sense versus retail. So if you're going into a suburb and the equivalent yield for an equally good quality tenant for retail is 6%, but industrial is 5%, as a smart investor, you're going to look at the 6% as a better dollar-for-dollar deal. Maybe office in that market is 7%. So if you're going to buy an industrial asset at a 3% lower yield, you're going to see more value in the office.

So this is where the numbers will balance out. And I think industrial, because it is so white hot at the moment, there's going to be a bit of a balancing out and that might slow down in the markets where the yields have got too tight because investors just simply won't keep pushing the yields down. And the likes of Sydney or Melbourne, where the yields can be as low as 3% for a decent asset like you can't squeeze that much further like it doesn't make sense as an investor to to buy things that are two percent if if you care about returns at least so yeah there'll be a lot of the balancing between the asset classes but that's why i think the two

uh you know those assets of office and retail probably are gonna do well and um and yeah obviously on top of that you've got specialty assets like your child cares and service stations and that um they're more of you like your auction style assets and they're already going at record prices so that you know it's how hard do they keep going that's really that'll probably more more of a cash rate driven type demand yeah interesting are there any wild card or surprising elements that you believe may have a lasting impact on property this year i think the interest rate talk will be underwhelming um i i could be wrong it could be the end of 2022 and the interest rates have gone up but like that's why i mentioned there's always this clip i really feel like it's

people are trying to use this excuse to talk the market down and and the like this market needs an interest rate increase to be honest like there's a bit of silliness in this market where people are just buying anything they can whenever they can a little bit of an interest rate talk or an actual increase will be good just to knock some of that stupid out of the market and then we're back into more of your trend level, but still growing markets. And I can't imagine there's going to be falls in prices anywhere unless the market's gone too hard, too quick for the last two years. Yeah, I agree with you. And I tend to lean on your side of the table as far as a lot of signalling of the interest rate rise. I think it would be a fairly brave RBA to lift

the cash rate. APRA is already playing with macroprudential measures that are starting to sort of dampen demand anyway. But I think it's the old story, the press makes a big noise, it'll have the effect that they're trying to achieve without actually having to take the action. So very interesting, mate. Well, I always like to enjoy your insightful projections, Scott, and thanks for joining us on the show today. Thank you, mate. Thanks, Scott. Well, it's clear that there's still plenty of opportunity in the commercial property arena if you know how and where to look so if that's something that grabs your appetite reach out to scott and the rethinking investing team to investigate your options further

you're watching your go-to place for all things property here on realty talk well that's a wrap for this week's show a big thanks to our special guests argent paliwell Katie Richards, Luke Harris, and Scott O'Neill. And to make sure that you don't miss an episode of Australia's longest running and most popular online property show, subscribe to Realty Talk Now on Apple Podcasts, Google Podcasts, Spotify, YouTube, or wherever you watch and listen. And make sure you sign up on the realty.com.au homepage to get every episode in your inbox every week. And while you're there, make sure you check out one of Australia's most extensive range of properties for sale from over 7,000 agents nationally. Thanks again to realty.com.au

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