Hotspotting

In our latest episode of 'Interviews with the 1%', we are excited to feature Best-Selling Author Nicola McDougall.

In this episode Nicola shares her property investment journey including her parent's teachings, purchasing her first property tenants in common with her brother and growing her portfolio from there.

Nicola details the struggles that women can face on single incomes but shares some tips on how to make the most out of your situation.

About Nicola

Nicola McDougall is one of Australia’s most well-known property investment experts and is the co-author of the best-selling book, The Female Investor – Creating Wealth, Security & Freedom Through Property and Property Investing For Dummies (3rd Australian edition).

She is also a multi-award-winning property and finance journalist, industry spokesperson, business owner, and successful property investor.

The housing crisis in Australia has been the hot topic for a number of years now. But how did we get here?

Tune in to our latest podcast with Terry Ryder & Simon Pressley of Propertyology. Arguably two of the best minds in Australian Real Estate.

About Simon Pressley

Managing Director of Propertyology and 3-time Australian (REIA) Buyer's Agent Of The Year, Simon Pressley was inducted into the Australian Real Estate Hall of Fame in 2015. 

Simon is passionate about helping everyday Australians to build a more sustainable lifestyle through making astute property investment decisions. He (unapologetically) is renowned for challenging conventional wisdom to help people have a smoother journey to a better destination.

A strong lateral thinker and a thought leader, Simon spends several hours everyday studying the property economics of Australia's towns and cities. His strong and passionate opinions are often featured in the media.

The chronic housing shortage that we’ve been hearing so much about lately is getting worse – and will continue to get more and more serious.

Three major measures of the supply of homes, both for purchase and for rent, are heading in the wrong direction for a nation that needs solutions from our politicians.

Building approvals continue to fall when the nation needs them to be rising, loans for the purchase of new dwellings are also heading in the wrong direction, and vacancy rates continue to go lower, when the one-third of households that rent need them to rise to take the pressure off rents.

And what are our state and federal governments doing to solve this crisis?

Well, collectively, they’re making it worse. 

They keep passing laws that make owning an investment property more and more onerous, causing growing numbers of owners to sell, thereby reducing the rental pool and making vacancies worse.

They also keep adding to the costs of creating new homes, which makes it harder for the building industry to provide the new supply the nation needs.

The Federal Government has set the grand target of 1.2 million new homes over five years but, as is so often the case with politicians, they haven’t thought much about it beyond the press conference.

When the Government says it’s going to build 1.2 million new homes, what it really means is that it hopes the building industry can somehow deliver its target - without actually having any policies to address the problems which will mean this grand objective is unattainable.

All the latest data shows how far behind we are in terms of achieving this goal.

Currently, the production of new dwellings in Australia is the lowest it has been in 12 years.

Approvals to build new houses showed an almost 10% decline in January, compared to December. Seasonally adjusted, the January numbers were the weakest since June 2012.

In the past 12 months, there have been approvals to build 101,000 new houses, the lowest in more than a decade.

The ABS data shows that new house approvals have fallen in four of the past six months – and there is a clear pattern of decline in new homes at a time when we need it to be picking up.

Meanwhile, the Housing Industry Association says that the number of loans issued for the purchase and construction of new homes fell by 4.2% in January and remains at its lowest level since 2008.

HIA Chief Economist Tim Reardon says lending for new homes was at record lows in 2023, and this downward trend has continued into the new year.

The trend surprises no one in the housing industry, where there is widespread cynicism about the Federal Government’s grand announcement, without any policy substance to deal with the many issues that plague the home building industry.

There continue to be shortages of materials and tradespeople, costs continue to be high, elevated interest rates don’t help and we continue to see building companies go broke week by week.

Australia is currently having a boom in infrastructure construction and that has sucked a lot of resources out of home building.

State Government and local council meddling with the process continues to cause costly delays and to add to the cost of building new homes, making it increasingly difficult to operate profitably.

The weakness in building approvals nationally is being seen at a state level as well.

In Victoria, the number of houses approved for construction has dropped to the lowest level for over a decade – with approvals in January the lowest since October 2013 – and this in a state where the State Government had said it would build 800,000 new dwellings in a decade.

Victoria has one of the weakest situations in the nation, not helped by having the highest property taxes among the states and territories - with new imposts being imposed in 2024 to further discourage investment and construction.

In Tasmania, building approvals have dropped 30% in the past two years.

Indeed, in January private sector house approvals fell in all states, including by 17% in Victoria and by 13% in NSW.

The third measure of the chronic dwelling shortage is vacancy rates for rental properties, which have been dropping steadily for the past 5-6 years.

They were already at historic lows across Australia but the latest vacancy rate data shows them going lower still.

The national vacancy rate recorded by SQM Research fell from 1.3% in December to 1.1% in January, with vacancies falling in all eight capital cities.

State and territory governments continue to make decisions and pass laws that are detrimental to property owners, causing investors to sell, thereby reducing the rental pool further.

Investors owners are already faced with massively increased costs through higher interest rates, increased council rates, rising state taxes, higher insurance premiums and increased maintenance costs.

Years of detrimental decisions by governments has created this chronic rental shortage and it continues to get worse.

The Victorian State Government is introducing a raft of measures in 2024 which collectively are a major discouragement to property owners – and more and more investors are selling up and getting out of the Victoria.

It’s significant that, according to the SQM Research figures, the biggest decrease in vacancy rates was seen in Melbourne, which dropped from 1.5% in December to just 1.1% in January – a massive change in a single month.

Another property data source, PropTrack, also puts the national vacancy rate at 1.1% - but a third source, Domain, has an even lower figure – just 0.7% in February, down from 0.8% in January.

This is a new record low, according to Domain, which says the mismatch between low supply and rising demand is an ongoing challenge for tenants amid rapid population growth (boosted by overseas migration), a strained construction sector and rising property prices locking people into renting for longer.

According to the Domain figures, six of the eight capital cities have vacancy rates below 1%, including just 0.3% in Adelaide and in Perth.

All of this information presents a grim picture for the supply of homes, both for sale and for rental, across Australia - and means that prices and rents will continue to increase.

They say that insanity is doing the same thing over and over again and expecting different results.

By that definition, many of the nation’s most high profile economists are insane.

One of the defining characteristics of Australia’s leading economists is that they will never change their theories about housing markets and property prices, no matter how often they are exposed as being wrong.

The senior economists working for the big banks continue to discuss the entity they call “the Australian property market” in terms of interest rates as the biggest factor of influence, despite having their views cruelly exposed by the results of 2023 (when they all predicted prices to fall 15% or more because interest rates were rising, only for prices to rise strongly).

Their forecasts are ALWAYS wrong because they think it’s all about interest rates and they refuse to admit that their simplistic mindset is flawed. So they keep getting it wrong.

But perhaps the greatest example of refusing to let go of pet theories, despite repeated failures, comes from the senior economist for AMP Capital Shane Oliver, who gets my award as the worst forecaster of property price trends in the nation.

Oliver has long had his nose out of joint because property prices refuse to behave themselves, according to his world view, and because housing is “over-valued”, according to his cherished theories.

It was Oliver who famously went public in 2005 to declare there would be no growth in property prices across Australia for the next 10 years because property was massively over-valued back then.

Here’s what he said in 2005: “House prices are at least 25% over-valued and may not start to rise again for another decade. It will take 10 years for rents and wages to catch up with house prices and there will be no rise in the housing market until they do so.”

But, of course, property prices did indeed rise between 2005 and 2015 – a lot.

According to the ABS, Sydney’s median house price rose from $494,000 in 2005 to $864,000 in 2015, while Melbourne increased from $320,000 to $570,000 and every other capital city had similar increases. 

There were also big increases in median prices for apartments in ALL of the capital cities.

So how could a senior economist for a major national institution get it so wrong?

Essentially, it’s because of the belief that house prices should be intrinsically linked to other factors like rents, for example, as declared by Oliver back in 2005.

But there is no evidence I’m aware of that this linkage exists. In my 40-plus years researching and writing about Australian residential real estate, I have never seen any evidence that the level of house prices is dictated by residential rents, or influenced by them in any way.

House prices rise because of competition in the market. If a house is for sale and there is more than one person interested in buying it, this will tend for put upward pressure on the price. This is particularly so in an auction situation, but can also happen in private treaty sales.

This is notably so in recent times, with ongoing strong demand for properties (inspired in part by strong population growth, boosted by high migration levels) at a time when supply is historically low. 

We are not building enough new dwellings and there is a shortage of listings of properties for sale, relative to buyer demand.

So, prices are rising. Competing buyers at an auction don’t spend any time thinking about rental levels, keeping in mind that the vast majority of buyers in the market are home buyers, not investors.

Now, here’s the broad definition of fair market value used by the people whose job it is to estimate such things, property valuers: 

“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.”

You will note that there’s nothing in there about connections with residential rentals or current wage levels.  It’s simply about the price arrived at in a competitive market.

But, despite being so spectacularly wrong about what would happen to property values in the decade following 2005, not to mention his forecasts for price outcomes in Australia in the past several years, has Oliver discarded his theory and sought something more credible?

Sadly, no.

Oliver burst into print again in early March to declare, again, that house prices have outstripped what he terms “fair value” in many parts of Australia.

He published an analysis, for want of a better word, that found that house prices across Australia were over-valued by “more than 29%”.

In Sydney, he said, houses are over-valued by “almost 33%”, which means the median house price needs to fall by $458,000 to be considered fair value, according to his beloved theory.

Brisbane was over-valued even more, by 33.5%, and Canberra by 31%, while in Melbourne it’s 26%, according to Oliver.

What he is saying, effectively, is that everyone involved in the housing market – buyers, sellers, valuers, buyers agents and selling agents – are all idiots behaving foolishly.

How has he arrived at this stunning conclusion?

By comparing price levels with rents, in the same way as a price-earnings ratio for shares – the same method he used back in 2005 when he was so utterly wrong with his forecast for house prices for the next 10 years.

Here’s the big difference: everyone who buys shares is an investor; most of the people who buy houses and apartments are not investors, they’re home buyers, and they don’t spend a single moment considering how the price they are paying relates to how much rent they could get for the property – because they plan to live in it themselves.

Oliver’s belief is that property markets should work the same way as equity markets in determining value. 

But the key point is that they DON’T. He may think they should, but they DO NOT.

Never have – and, I dare say, never will.

I note that the head of Australian economics for Commonwealth Bank, Gareth Aird, strongly disagreed with Oliver’s assessment in the same articles that published it.

Aird said that “over-valued” was a strong term and commented: “Unless you think house prices are going to fall, you can’t call them over-valued.”

Well, exactly.

Current price levels have been determined by the free and open market, as they have always been – and, far from being over-valued and therefore set to fall, dwelling prices are set to rise in 2024 in most parts of Australia.

Meanwhile, Oliver clings to a theory that was spectacularly wrong almost 20 years ago and has contributed to his extraordinary track record of failed forecasts about property prices since then.

In our latest episode of 'Interviews with the 1%', we are excited to feature Simon Pressley of Propertyology. This is an absolute must-see episode with arguably two of the best brains in real estate here in Australia.

In this pre-recorded video Simon shares his strategies, experiences, and lessons learned along the way, giving you an inside look into how he has built his impressive portfolio.

About Simon Pressley

Managing Director of Propertyology and 3-time Australian (REIA) Buyer's Agent Of The Year, Simon Pressley was inducted into the Australian Real Estate Hall of Fame in 2015.

Simon is passionate about helping everyday Australians to build a more sustainable lifestyle through making astute property investment decisions. He (unapologetically) is renowned for challenging conventional wisdom to help people have a smoother journey to a better destination.

A strong lateral thinker and a thought leader, Simon spends several hours everyday studying the property economics of Australia's towns and cities. His strong and passionate opinions are often featured in the media. Do yourself a favour and don't miss this one!

Australians are passionate about real estate and over two million of us own investment properties, while many more have aspirations to acquire property to grow their wealth and provide for their retirement.

But while the nation is full of people with ambitions in real estate, the reality is that relatively few people are successful with property investment.

As a nation, we’re not particularly good at property investment.

The official data shows that while more than two million Australians participate in property investment, 72% have just one property and another 18% have two. 

That’s nine out of 10 investors with just one or two properties.

Those who have a portfolio - owning five or more properties - are less than 1% of the total.

The question is: why do so few achieve success with property investment?

I think it’s fair to say that most people come to real estate investment with ambition.

There’s often a dream of acquiring multiple properties and funding retirement with the proceeds of those real estate assets - possibly even retiring early.

But the data shows that most people get stuck on just one or two properties.

Why is it so?

Our experience with investors and prospective investors suggests a number of reasons:-

• Many investors are herd animals, who jump into the market when they hear or read there’s a boom happening, rather than having a defined strategy heading towards a clear objective.

• Far too many people are unwilling to invest in good advice and information before spending the big dollars on buying a piece of real estate – and that’s the worst kind of false economy.

• Many wannabe investors are wait-and-see people - they find myriad reasons to procrastinate and avoid making decisions and moving forward - the next RBA board meeting, the result of the next election, the negative forecasts of economists, and many others.

• For all of these reasons, many investors make a hash of the first investment - buying in the wrong location, paying too much or failing to do proper due diligence and ending up with a property that doesn’t perform. This makes it hard to move forward to acquire more properties.

The objective of the Hotspotting team is to help as many people as possible avoid these mistakes and make a success of property investment.

As part of that goal, we have created a podcast focused on the 1% - the special cohort of people who have created a substantial property portfolio. 

In “The 1%” podcast, we interview some of Australia’s most successful property investors and advisers to find out the keys to their personal success and to learn how others can follow their lead and be part of the elite few who make it big in real estate investment.

There’s no better way to do property investment well than to follow the example of those who have made a success of it.

Internal migration, which means people moving from one part of Australia to another, continues to be a major driver in real estate markets across the nation.

The trend we call The Exodus to Affordable Lifestyle is still pumping, with large numbers of people relocating from the biggest cities to regional areas in pursuit of a different lifestyle at cheaper prices.

The latest data and analysis from a range of sources, including the Regional Australia Institute and real estate data company CoreLogic, confirms that this remains a major demographic force, with major consequences for real estate.

It was not, as media has incorrectly portrayed, a trend generated by the Covid lockdowns. It has been happening for much longer than that and it continues to be a significant force.

Queensland has long been, and remains, one of the nation’s chief beneficiaries of this mass movement of people in search on affordability and lifestyle, powered by technology which has enabled more and more people to work remotely.

This has impacted real estate markets across the state, from the Gold Coast at the NSW border up to Townsville and Cairns in North Queensland.

In the new 2024 edition of Rising Stars, a report written by Hotspotting in conjunction with the nation’s biggest comparison website, Canstar, Queensland is ranked as the regional market with the strongest prospects for the coming year.

The Rising Stars report uses five key metrics to rank the 14 major market jurisdictions - the eight capital cities and six state regional markets - on their prospects for growth in 2024.

Queensland was rated the strongest regional market and ranked fifth overall among the 14 market jurisdictions.

It ranked in the top 4 nationally on three of the five metrics – sales activity, short-term price growth and infrastructure spending. It also produced solid ratings on vacancy rates and rental growth.

The combination of its solid performance across a range of measures has resulted in a strong overall ranking – and gives substance to the expectation that Regional Queensland markets will be among the nation’s out-performers in 2024.

Hotspotting has just published its annual report with Australia’s largest comparison website Canstar, the one we call Rising Stars.

In the Rising Stars report each year, we use five key metrics to rank the 14 major market jurisdictions in the nation - the eight capital cities and six state regional markets.

The report ranks the 14 market jurisdictions from 1 to 14 on their prospects for growth in the coming year.

The 2024 edition of Rising Stars ranks Brisbane No.1 - the market with the best prospects to provide growth in the next year or so.

Brisbane is a standout on all the five metrics we use to arrive at our ratings - sales activity trends, recent price movements, vacancy rates, rental growth trends and infrastructure spending.

Indeed, Brisbane ranks in the top 3 in the nation in all of those metrics except vacancy rates, with particular impact from rising sales activity, recent price growth and high rental growth, as well as a big infrastructure spend.

The market performance we expect from the Queensland capital in 2024 continues the excellent results of last year, when Brisbane was one of the top three markets in the nation for house price growth and Australia’s best performer on price growth in the unit market – a factor which is becoming increasingly important around Australia.

According to CoreLogic, the median house price for Brisbane rose 13.3%, which was second behind Perth, while both PropTrack and Domain rated Brisbane the strongest unit market in the nation for annual growth in unit prices.

The ranking in the new Rising Stars report suggests Brisbane is poised with another stellar year in real estate, boosted by rising population thanks largely to internal migration, a solid underlying economy and a massive infrastructure spend - with more to come as the city works towards its destiny as the host of the 2032 Olympics.

Are you ready to take your property investment game to the next level? Catch the replay of our exclusive webinar hosted by Tim Graham from Hotspotting, featuring special guests Chris and Zen Christofi from Reventon. During this webinar, Chris and Zen unveiled the highly sought-after Reventon Formula that has been transforming the lives of Australians since 2005. This proven formula has helped thousands of individuals grow substantial property portfolios as well as help pay down owner-occupier debts, achieving remarkable results in the process. Don't miss out on this opportunity to gain valuable insights and strategies from industry experts who have a track record of success spanning close to 20 years.

Australia's #1 Buyers Advocate InvestorKit’s analysis of the fundamentals says Yes!

The best forecasters of real estate trends are the specialists dedicated to researching markets daily.

They’re not bank economists and media commentators who occasionally turn their attention to the housing market.

They’re the full-time dedicated professionals who have picked apart property dynamics to understand the trends and why some locations perform better than others.

They’re people like Arjun Paliwal, director and head of research at InvestorKit.

Bank economists believe one dominant factor dictates property markets: interest rates. And that’s why they always get their forecasts wrong. 

The researchers at InvestorKit have a far deeper understanding of real estate: they have developed their own unique methodology based on 25 core fundamentals. And they have a pressure-based market scoring system to identify which markets will outperform. That’s why their forecasting record puts the big banks in the shade.

Hotspotting founder Terry Ryder speaks to Arjun Paliwal of InvestorKit in this recent webinar. This is priceless information you won’t get anywhere else.