2019, the year that was (and a sneak peek at 2020) (Ep.28)

Jump on the roller coaster as we take a look at 2019 in the rear view mirror.  

If you look to your left you will see the Royal Commission into Banking coming to a close with a slap on the wrist for lenders. On the right we have the LNP with a surprise victory, taking out the election. Back to your left is APRA reducing the assessment rate and caps on lending and the RBA slashing rates.  

Hold on to your hats ladies and gentlemen! We’ve hit the trough and started to climb.  

In episode 28, we discuss “2019, the year that was (and a sneak peek at 2020)”. 

Listen as David Johnston, Cate Bakos and Peter Koulizos take us through the events that shaped the property market as we shut the door on 2019 and some predictions of what’s in store for 2020.  

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Show notes

  • The second half of 2019 has seen the fastest market turn-around in history. So, what brought this on? 
  • At the start of 2019:  
    • Amidst the Royal Commission into banking – lenders were cautious to invite investors back into the fold.  
    • Pre-election Labor policies relating to negative gearing were scaring people 
    • Wait and see attitude filtering through to property values.  
  • The turning point – June 2019: 
    • A prior rate cut before excited the people who were feeling bold.  
    • Market sentiment increased with the Liberal election win 
    • Stock shortage with good market sentiment = the fastest bounce-back 
  • Opening the flood gates:  
    • APRA loosened caps on lending and lowered the benchmark assessment rate.  
    • The Banking Royal Commission was a distant memory – for banks and mortgage brokers.  
    • Government cash splash – a leg up for first home buyers 
    • Reduced tax rates to middle income earners. 
    • RBA slashing rates – 3 times in 4 months to entice spending. The impetus is more spare cash, means more spending, more jobs, increased wages, reduced unemployment.  
  • Supply v demand – we have an increasing population and slower building starts, which amount to a stock shortage. There is huge demand and limited supply.  
  • The best buys are when sentiment is low – did you have the courage to purchase? At the coal face, 20% increases have been seen in the inner ring.  
  • The Property Buyer’s prediction: December data (released in early Feb) will show double digit growth for Melbourne and Sydney from pre-election to end of year.  
  • Completed correction – the full recovery has already occurred in the inner and middle ring.  
  • APRA reducing benchmark assessment rate – you may be paying a rate of 4.00%, but the bank is assessing your ability to repay as if the rate was 7.5%. Now that it has been reduced to 5.5%, it increases borrowing capacity. And we called it, it was only a matter of time before that would flow through.  
  • Negative Nelly asks ‘what will the regulators say when they see double digit growth?’ Regulators will clamp down, particularly where rate cuts have not done what they were supposed to do – increase spending. Macro prudential changes will be made. But like steering a ship, you cannot turn quickly. After a year, will you see that you have over-steered.  
  • The power of vendors – right now we see vendors who have to sell, not those that are prepared to sell. As sentiment increases, more vendors will come onto the market, increasing supply and slowing down value growth.  
  • New dwelling approvals are at a low, contributing to the under supply. The bottom of the level of supply will be reached in mid 2020. We will see incentives to encourage lenders to give more money to developers and blow back for consumers to borrow, particularly on investors.  
  • Concluding predictions:  
    • The Property Professor – we are in a growth spurt which won’t be sustained. A major problem is ‘under employment’. Those who went to university and got a degree but who are stacking shelves and pouring lattes because of job availability. Or those working a few days a week, wanting to work 5. If you don’t have a full-time job, you cannot borrow money.  
    • The Property Buyer – the inner and middle ring are aspirational suburbs, the under supply of property in those locations and over supply of people wanting to buy will drive up value growth for the next year.  
    • The Property Planner – markets always over correct and value growth is likely to continue to keep running beyond it’s full correction. Fomo (fear of missing out), increased income and ability to borrow could have it run into 2021.  

David Johnston – The Property Planner’s Golden nugget:  Why 2 to 5 properties is right for most hard-working professionals.  

  1. Time is our most precious commodity – the more properties you own, the more time you will spend each year managing these properties.  
  2. Tolerance for risk – to own more than 5 properties means that you have to take on a high level of debt. Most people have are neutral to conservative when it comes to risk tolerance 
  3. Cash flow management – managing your money and maintaining surplus cash flow to be able to make investments in subsequent properties becomes a challenge the more properties you own.  
  4. Lifestyle priorities– the home is often the largest investment someone will make and is often the most important purchase, meaning you spend more. This restricts the number of properties you can afford to purchase.  
  5. Enjoying life: most people like to spend time with their friends and family. Purchasing property eats into your spare time, chewing up your weekends and evenings.  
  6. Purchasing quality property – selecting top quality property is difficult, the more you purchase the more risk you have of getting it wrong. 3 well selected properties will beat 6 poor ones any day.  
  7. Creating wealth – owning 2 to 5 properties at retirement will create you enough wealth to be in the top 1 or 2 percent of Australians.   

Peter Koulizos– The Property Professors’s Golden nugget: The key to creating wealth and retiring well is capital growth. 

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