market update this July 2018

MARKET UPDATE JULY 2018

The long and short game

Most people play the short game. They invest in property based on what they see now rather than any vision of the future. And when I say vision of the future, I’m really talking about housing and housing make up.

If you grew up in the 1970’s, as I did, we lived in a 150m² house on a 1,000m² block of land. Generally, the house was a 3brm, one bathroom, single lock up garage and a massive backyard. The population per household then was 3.3 people.

Today the average house is 260m² 4brm, 2 bathrooms, double lock up garage which sits on a 406m² block. The population per household now is 2.6 people.

More important for us is that the median house has gone up 46 times its value since 1970 whilst the land component has gone up 150 times its value.

Yet still most investors think you should buy close to the CBD and what they miss is land content. Sydney cycle 2011-2017 saw median house price rise 91%. Inner 10km suburbs rose 108%. Edmondson Park 50km from the CBD the median rose 176%. More to the point for us is that land values in Edmondson Park rose 275%.

A 50km drive from Melbourne City, Melton real estate bought for $349/m² in 2015 is today worth as much as $738/m². CoreLogic has named it the second-best performing suburb over the past 12 months for Victoria.

And the obvious issue with the inner city dwelling is your buying an older building with no depreciation and lots of repairs. 

Let’s look at The long game

The long game for real estate is three industries – education, aged care, and healthcare.

Education is our 3rd largest export, the Aging population has increased to 1 in 6 of every Australian and Healthcare is Australia’s #1 employer. Yes, the average house has 2.6 people but 26% of all households only have 1 and this is growing.

Let’s connect the dots. International students are growing at an astounding rate. They have increased from just over 500,000 to 800,000 at the end of 2017 and more importantly jumped 100,000 just last year. With the USA pushing back on Chinese students and now India rapidly growing Australia will receive a major intake. I can see this growing to 2 million by 2025.

 

number of international students enrolements in Australia

Pensioners and aged care workers go hand in hand with growth and create a demand for care living close to infrastructure and hospitals. Healthcare currently employs 1 in 7 Australians and by 2030 this could be as low as 1 in 5.

What housing will they need? My view is our 400m² block with the 195m² house will morph. The garage will convert to student accommodation with a ‘fonzie flat’ added above for the single pensioner and the backyard will take a 3brm 65m² granny flat or attached dwelling. That’s the short-term future of housing and why I push you hard to build the land bank while you can.

Australians doing much better than we think

News reporters are good at delivering you all bad news but 2 numbers are really worth highlighting. 

Firstly the federal government forecast a deficit for this financial year and as at the end of May, they are actually showing a $9.4 billion surplus. They are over $20 billion ahead of forecast. Unless they blow out in June these results show we are doing really well.

On top of that, as I have mentioned before, we created 420,000 new jobs in 2017. Our population only grew by 388,000.

Those are two (or three) numbers that really do have meaning for us building a land bank.