What's Hot & What's Not 2011 Review

2011 proved to be a growth year at the NextHotSpot. Whilst it may seem we have been 'Missing in Action' with our weekly updates over the past few weeks, we haven’t been sitting on our hands and have been working on a range of new and innovative products and services scheduled to be offered to members early in 2012.

The NextHotSpot membership has doubled to now support over 20,000 investor members and over the past few months we have helped our clients secure more than $30 million in residential property in some of Australia's hottest property markets.

In 2012 we will be launching a range of new and exciting initiatives exclusive to NextHotSpot members. We have been very busy building our very own reporting template on property hot spots and have a range of new on-line media and exclusive video reports planned to keep our members ahead of the market on where and when to invest.
 
Thank you for your support throughout 2011, especially those members that chose to secure a property in one of our approved Hot Spot projects. We look forward to making 2012 an even better one for you and helping you find that perfect investment in Australia’s next property hot spot!

The following report is a quick re-cap on the year. Whilst it started with the typical Doom & Gloom it seems that the Australian property market has proven many “property pessimists” wrong and an investment property is still a safe and strategic option for Australian investors.

First we start with the economy or rather its second gear:

2 Speed Economy

Many column inches have been dedicated to this topic over the past year, including in this space. Even when viewed as a broad generalisation, it is enough to state the simple truth as:

“locations exposed to mining industry investment/development will continue to outperform those that don’t”

In reality, various sectors of the economy will continue to move at many different speeds, as will property markets.

To save covering old ground, please click here to view our full report on the '2 Speed Economy' and what we think this means for property investors

Housing Bubble?

The concept of a bubble in Australian residential property has pretty well been put to bed. Debate has ’bubbled’ along over the last 2 years and occasionally flares when global lists prepared by commentators like ‘The Economist’ and Demographia describe Australia’s real estate as the world’s most expensive.

As we often point out in this space, negativity rules the media because bad news sells more papers and some commentators clearly need to perpetuate their status as purveyors of gloom.

Some commonsense observations;

• Australian property is now more affordable than at any time since the mid 1980s according to ANZ bank and many other stake holders
• Even a basic analysis of ‘The Economist’s’ opinions shows a high correlation between “liveability” and “affordability” – i.e. the higher a location’s desirability, the higher the price.  Wow, who’d have thought?
• Property price rises tend to track income.  Where and when prices change is a reflection of the local economy
• Even the head priest of gloom, the largely discredited Steven Keen has predicted only a 10% decline in national housing values in 2012.  For the record, he predicted a 40% decline across the board in 2010.

Very simply, where there is demand for housing and households can afford to service their debts, there is a floor on housing prices.

Christopher Joye of Rismark International and one of the few worthwhile property commentators in Australia offered an excellent summary of this debate on Property Observer on 20th December.  If we had to select one piece of his data to summarise, it would be

“Collectively, incomes and interest rates account for 92% of the increase in median Australian dwelling prices over the period 1985 to 2011.”

Bubble?  Move on and worry about something real.

Where growth has been in the last decade

RP Data published this list of the top 50 capital growth suburbs of the last 10 years on page 9 of the November 2011 edition of ‘Your Investment Property’ magazine.

Your Investment Property - RP Data Top 50 List (550.63 KB)

A general disclaimer suggests that whilst the numbers presented should be treated with a grain of salt, and need to be understood, a 10 year sample period offers a reasonable enough profile of the market to identify some clear trends.

For example, it is difficult to understand Marulan, given the size of its market and Burswood’s inclusion is based on more or less developing a suburb from nothing.  But in this, Burswood’s results demonstrate some of the value of this list – not a single long standing residential area made it.  It is useful to view this in terms of an old trading analogy “the trend is your friend”.

3 clear and evident truths from the growth patterns of the last ten years;

1. Resources industry development creates the growth in property as well as the wider economy
2. The greatest growth in property takes place in lower priced areas
3. Capital cities benefit where they collect mining receipts and royalties, otherwise they underperform

Commentary

No regions are high priced, with possible exception of Burswood units, average price is $426,610 compared with RP Data’s national average of $499,000 for houses and $425,000 for units.

Of the 50 locations, the state break up is,

• WA – 24
• NSW – 10
• Qld – 5
• NT – 4
• SA – 4
• VIC – 2
• ACT – 1

WA unsurprisingly heads the pack over the last decade, as it has already seen the benefits of a wave of resources boom.  With another boom coming in the west, WA can be expected to kick more quickly than other resources states for several reasons, including better infrastructure developed during the first wave of boom over the last decade.  

Interestingly, the boom-bust nature of resources industries has again exposed the volatility of high priced residential property and its unsuitability for investment stock.  Only one high priced suburb (Burswood units) makes the RP top 50 list, with the strongest representation being from modestly priced suburbs to the north and south of Perth CBD.  Three generalised effects of a mining boom can be identified from the data;

As mining is a relatively small direct employer, there is a small and powerful localised effect from mining investment  in the areas where it develops infrastructure

The broader and most significant effect of mining activity is its stimulus of the services sector which employs over 80% of Australian workers.  This can be seen in the strong rise of low to medium priced housing.

Perth, as the capital of WA collects many of the beneficial flows from mining.  Groupings of outlying suburbs to the north and south of Perth CBD represent the strongest beneficiaries over the last decade, although this is more exaggerated in WA given its isolation and relatively small population in a very large area.

The massive industrial developments in Qld and SA can be expected to have a strong growth effect as has been seen in WA but it is important to understand that whilst construction of many billions of dollars of projects is underway, the benefits that flow from them being operational are some years away.  These effects will be seen in the top 50 performers list in 10 years time.

Next Hot Spot predictions for 2011

We are proud that we have been vindicated in recommending to you;

• Regional centres with industrial development

• City fringe suburbs

• Avoidance of high priced residential property

• Look for entry level properties, around $400k or under if possible

These principles will hold you in good stead in the near future.

We’ve successfully nominated developing resource towns such as Gladstone, Newcastle, Gunnedah, Whyalla and Port Augusta ahead of the pack and warned you about problem areas such as the Gold Coast, Sunshine Coast, Tasmania and inner city Melbourne.  About the only tip we’d like to revise is Broken Hill, which looks to be generating critical levels of industrial activity.

We’ll publish a comprehensive list of our tips for 2012 Hotspots in January next year but in the meantime, we recommend that you bear in mind the following points during your holiday reading;

One of the hallmarks of a flawed philosophy is that its predictions fail to come true.  With that in mind, you should be careful of those who:

1. Decry “hotspotting”.  This process means identifying areas that will outperform other locations over a decade or more.  One of the main opponents consistently rejects it as “quick buck mentality” and speculative but this is an outright lie.  In their case though, it is understandable that they want to deflect attention from previous nominations and they still champion capital city markets.  OUTRIGHT FAIL!
   
   
2. Those who nominate major population centres (over 500k population) as the only place you should invest.  Look at the numbers – OUTRIGHT FAIL!

The outlook for 2012

A key understanding here is that there is no such animal as a single Australian property market.  This is also true for capital cities – there are many individual markets at work in these urban conglomerates.

Having said that, there is much general optimism that we have seen the bottom of markets and that Sydney will lead a recovery.  We believe that Brisbane is well placed, having seen pricing retracement after flooding and other dynamics and due to start profiting from the current wave of mining just about to kick off.

Full reporting in January, so in the meantime, here’s a selection of thoughts from some of the key thinkers on Australian property.

Terry Ryder of ‘the Australian’ and Hotspotting.com.au

Terry believes many of the key regional markets that will lead capital growth in the near future have already turned.

“Anyone thinking of investing in the many vibrant regional markets across Australia - places such as Gladstone in Queensland, the Hunter Valley in NSW, Bendigo in Victoria and Whyalla in South Australia - has already missed the bottom. That doesn't mean there are no opportunities there to invest well - but if it's the bottom you were waiting for, you'd better get busy.”

As perhaps the leading location picker in Australia, Terry throws a blanket over his favourite picks for next year – notably all mining related.

“If I had unlimited funds and lots of time on my hands, I'd sign pre-Christmas contracts in the following 25 key locations: Gladstone, Toowoomba, Emerald, Mackay, Brisbane, Tamworth, Gunnedah, Muswellbrook, Newcastle, Sydney, Broken Hill, Bendigo, Ballarat, Warrnambool, Portland, Adelaide, Whyalla, Port Augusta, Ardrossan, Ceduna, Albany, Bunbury, Perth, Geraldton and Kununurra.”

Many of the stakeholders in the residential property markets are optimistic about our outlook, given that widespread negative reporting is usually uninformed scaremongering.  ANZ’s head of research Paul Braddick declared in November that our housing is more affordable than at any time in the last 30 years.

RP Data director of research Tim Lawless sums this up neatly.

"The combination of lower interest rates, cheaper homes and rising incomes is generating a welcome boost to housing affordability, particularly in those markets where value falls have been more significant."

Christopher Joye, whom we mentioned previously, sums up the position at Christmas 2011 this way.

“It turns out that in 2011 Australian households actually have more income left over after purchasing the dwelling of their dreams and meeting their principal and interest repayments than any of their predecessors since our analysis begins in June 1985.  On the basis of this benchmark, housing affordability in Australia has never been better.”

Summation

Broadly speaking, the future for Australian residential property in the next decade is in areas with strong and diverse local economies that offer affordable pricing and are experiencing a wave of resources based job creation.

The team at the Next Hot Spot cant wait for 2012 and share with some of its exciting developments in reporting. We have a range of innovations to share with you and we hope you find them useful in your quest on purchasing in Australia's hottest property markets.

We’re always happy to discuss our thoughts and research – if any of these is worth a chat, please email or call us 02 9917 8600 or click here to send us your details!

By the Way!!

"MERRY CHRISTMAS" from the team at NextHotSpot.com.au

Missed out on last weeks report? Click below to view the August 30th edition of