MB Fund Podcast: Boom & Bust – Australia’s two-speed property market, with Martin North

Today we turn our eye back to Australian property as low interest rates has fuelled a marked surge in demand as the economy rebuilds post pandemic.

What has emerged however, is a two speed house price boom. With a superb run up in prices of suburban houses, as space and isolation are sought, prices of inner-city apartments, typically favoured by investors, have languished.

To help colour in exactly the extent of these falling rents, MB Fund’s Head of Investments Damien Klassen, and Head of Advice Tim Fuller are joined by friend of the show Martin North, who is founder of boutique research firm, Digital Finance Analytics.

On the agenda:

  • Australian property affordability
  • Apartment prices cratered
  • Effect of inflation and macro factors on Australian property
  • Cities: affordability vs investment
  • Hot regions

View the presentation slides
You can find Martin at Walk The World

 

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Tim Fuller is Head of Advice at the MacroBusiness Fund, which is powered by Nucleus Wealth.

 

Tim Fuller

Comments

  1. Martin North is continually on this site, but I don’t think his track record is good.
    I don’t follow him closely, so my apologies if that is incorrect.
    Am I the only one that feels underwhelmed when I see Martin North’s as a guest on this podcast?
    Mind you, he comes across as an honest person.

    • To be fair to Martin North, he doesn’t pretend to be a forecaster, he just reads the data and outlines scenarios. But yes, his scenarios tend to have a rubbery house price projection attached to them which seems to change with consensus and sentiment rather than data, it would seem.

    • Denis413MEMBER

      Check out HnH’s iron ore forecasts and you’ll understand why MN belongs on this site.

      • Very good, Denis, but we will have to wait till the end of H2 to see where we stand regarding the price of Iron Ore.

      • Any prediction is like trying to measure the distance to the moon with your six inch ruler. Both H&H and Martin North would have realised that by now

    • Martin and his mates are permabears. They continually underestimate and are surprised by government support for housing and the economy.

  2. Maybe Martin should ask his Chinese mates.

    The Boomers would love this kind of thing. Most are sellouts anyway.

    • U sure “chinese” friends?

      MN regularly works with that Sylvester Baboone who makes D, L and S sound like in love with China and Xi

  3. I like Martin North and occasionally listen to his podcast, but at what point does one admit that their predictions, no matter how well thought out and considered, are simply wrong.

    We had a global pandemic, and no one, NO ONE, myself included, expected house prices to increase, let alone by the quantum they did, but they did. So predicting anything, especially one determined by human emotion, is akin to sorcery.

    • If you follow MN , you may learn he does not make predictions, he makes various scenarios therefore most will be lesser or better match.

  4. arescarti42MEMBER

    Thanks guys – very interesting discussion. I’m currently doing the sums on property investment in the ACT – would love to get the slide on net yields for ACT uploaded if you have it!

    A couple of things that have stood out to me in my search:
    – Rent and price growth in the ACT over the last 10-15 years has been very lacklustre – 3-4% price growth PA for houses, 2-3% price growth PA for units, and only 1-2% price growth for rents. Surprising given how much interest rates have fallen, and how tight Canberra’s rental market generally is.
    -The raw numbers on units often seem to stack up better than on houses. A unit returning bugger all capital growth and a 3% net yield results in a higher internal rate of return (IRR) than a house generating 4% capital growth and slightly negatively geared, particularly if you reinvest the annual positive cashflow.
    -The returns on property are not as good as I expected given the amount of leverage. For example based on my assumptions, properties in the ACT with a LVR of 80% seem to generate an IRR of anywhere between 7-12%. While this is good, there’s probably other places you can get that kind of return without leverage, and with more diversification.

    • kannigetMEMBER

      – Rent and price growth in the ACT over the last 10-15 years has been very lacklustre – 3-4% price growth PA for houses, 2-3% price growth PA for units, and only 1-2% price growth for rents. Surprising given how much interest rates have fallen, and how tight Canberra’s rental market generally is.

      I am not sure where you get those figures from but using them, Once you work out that the price growth is only about 2* inflation AND you have tax, holding costs etc. Your likely to be just breaking even.
      With the ACT’s move to land tax instead of stamp duty this is going to be even more pronounced.

      -The raw numbers on units often seem to stack up better than on houses. A unit returning bugger all capital growth and a 3% net yield results in a higher internal rate of return (IRR) than a house generating 4% capital growth and slightly negatively geared, particularly if you reinvest the annual positive cashflow.

      Negative geared means your losing money this year in the hopes the capital growth is large enough to pay you back after factoring in CGT when you sell, you have to remember this. Negative gearing is a gamble on growth. Your own figures indicate its a poor growth so is the gamble worth it? The number of times I have heard people say they made $100K on the property the just sold, but look confused when you ask them about the holding costs…. You buy a house for $800K, about $40K stamp duty, rates, repairs, interest etc and then sell it for $900K… you possibly made $40K

      As for units, if you think they are better return then I have a slightly used bridge I can sell you, its a fixer upper but the potential returns are awesome considering the water views.

      Holding costs of units are high when you factor in body corporate fees etc. the potential for capital growth is also poor at the moment. You cant look at the purchase as the discount between what they say the property is worth and what you pay, you have to look at what you paid and its growth potential, which I see as low considering the situation at the moment on top of age related maintenance costs that kick in much quicker and much higher with units. If your not in the building and out again within the first 10 years the holding costs will go up. If you buy into a dud building then your stuffed… and they are a lot more common in the ACT than you realise.

      A friend bought a Unit in Belconnen for $260K, lived in it for 5 years but lost her job 12 months before Covid. Got behind on the body corporate fees and they threatened to bankrupt her if She didnt pay up. She moved back in with her parents and tried renting it out, couldnt get more than $300 a week so she sold it for $296K… 5 years of interest, body corporate, rates, etc + stamp duty and She tried to tell me she made $36K. Could not understand when I pointed out she lost money due to the holding costs. The Stamp duty and body corporate wiped out any profits, and her interest payments were higher than the rent she would have had to pay if she just rented it….

      -The returns on property are not as good as I expected given the amount of leverage. For example based on my assumptions, properties in the ACT with a LVR of 80% seem to generate an IRR of anywhere between 7-12%. While this is good, there’s probably other places you can get that kind of return without leverage, and with more diversification.

      My personal view is that property only really becomes valuable once you own it outright, as that is when the real returns come in, prior to that point your just renting it from the bank. Due to the history of incentives and stimulus injected into the market for the last 2 decades this has been obscured, but with each multiple of median income that it rises in “value” the risk of a collapse increases and if your leveraged the potential impact is also much higher. Lots of people have bought an sold for a loss over the last 10 years, despite all the “growth” and the stimulus…

  5. I want to see a Martin North and Phillip J Anderson interview. 18.6 year property clock backed by data.