Investing in NSW for under $650k

This is a Momentum Media production. Nerd alert! Property nerds. The home for data-driven property investors, where we uncover Australia's hot and cold markets, latest headlines and trends. Hello, hello.

This is Arjun here, Head of Research at InvestorKit and co-host of the Property Nerds podcast. We are back for 2022. This is the first episode for us. And I'm joined by the lovely Leigh Paliwal. How are you, Leigh?

I'm good. Back for another podcast, or our first podcast of the year, should I say? Yeah, first podcast for 2022 here in February and excited. Pumped, pumped. Now, February sounds odd for us to have our first podcast back, but I think it's pretty cool where, you know, we had a little bit of time off and we had some, you know, some adventures.

For those who, I don't know, might be curious to know what we get up to outside of property and literally finance. We love to travel. Love traveling. We love it. We got some time away.

We actually spent Christmas in Fiji, which was amazing. Bula for everyone who's been to Fiji before. That was the most used word I had in like every day. The service is the best. It's so hospitable and yeah, very nice people.

So yeah, Fiji for Christmas. We had five days there, which is like the perfect amount. Enough to do everything and enough to relax. And then literally a week after that, we went to Adelaide. Yeah, and Fiji was, I mean, we're pretty lucky, hey, like to be able to say like we traveled, you know, during.

All of what's been happening the last few years. I'm surprised that just we were, now that I say it back to myself, I'm surprised after two years of being locked up that we actually had a chance to go away, come back. And it was pretty seamless. I think, you know, we made the decision that we wanted to get away somewhere. And so I think we just made it happen.

And it was pretty cool to make it happen as a family. But yeah, it's pretty crazy to have been able to do that with all these restrictions. Yeah, I think, you know, that trip, the funniest moment I can remember on that trip was definitely the jet skiing. Remember that at the hotel? So that was very interesting for those who want to have a good laugh at something.

I have a mate of mine, Daniel, if you're tuning in, hello, hello. But Daniel took me out for jet skiing once here in Sydney and had a great blast with them. And it just was so much fun that I obviously was super keen to get a ski and a license. And literally within less than a month's time, you had a license and just waiting on the ski to arrive, right? Yeah, so now the license is here, the ski's now here.

And all of a sudden, Fiji trip comes along and I'm keen to show off the new captain's skills on the water. So long story short, the whole family's having a great time and we're all getting out and about. But I fell off the ski at least three, maybe four times, right? Not just you. Yeah, both of us.

I took you down with me. But yeah, definitely a lot of learning to do on that. And no one else had a license inside in terms of any sort of experience or driving around or practicals or theories or anything like, and everyone did better than me. You don't need a license in Fiji, let's put it that way. But you had the license.

Yeah. But that's all right. That was a good trip. It was a good trip. And so we went to Adelaide and that was a cool experience.

I guess Adelaide straight after, I'm not sure what firstly led us to Adelaide for the trip before we came back into the swing of things was we had a property that we purchased in Adelaide, I think October last year. And I think it settled in December. But when it settled was a long one, 21st of December. So for those who are in tune with settlement timings and the pros and cons of it, Christmas time was great in terms of the long settlement and having a nice gift to look forward to that, you know, gift to yourself with property settling. But we realized it's not the best when it comes to finding a tenant.

So Christmas time meant a little bit of a break. And when we got back from Fiji early Jan, we realized that the property, actually we forgot that even we had a rental campaign going, we realized, hold on a minute, we've got a rental campaign there. And I think they'd secured a tenant or they were about to have a tenant move in, but the tenant wasn't moving in until another week or two, 14th or 18th. Yeah. And so this was in Hallett Cove, a purchase that we made.

And we decided, you know what, empty house, why don't we go over? And so we got an airbed from Kmart. So thank you, Kmart. And we'll accept credit card transfers, anything for your sponsorship here. But we went to Kmart, got an airbed, chucked in a suitcase with some linen and we had a vacant home.

It was on a Sunday and then Monday we decided, you know what, we've got a week left until we go back on the 10th of Jan, vacant property, let's make the most of it. And it's in a beach suburb, which was also very nice. Yeah, that was fun. So that was amazing to discover how amazing those beaches are. Adelaide beaches are super underrated.

And I don't know if it's recency bias, but I reckon it's probably got some of the best beaches in the country when you think of... Lovely coastal walks, all of that. So yeah, highly recommend. Yeah, I mean, from Port Nolunga all the way down to Aldinga Beach, the drive on McLaren Vale within 20 minutes, Seaford, Port Wollonga, we did a whole bunch. And that was all within like one or two days.

So that was so much fun. But yeah, that was for those keen to know about what was happening behind the scenes for the property nerds and what we were up to in this time. That was our Christmas, New Year's. We're back into action and 2022 is super busy. And we've got lots to share.

And so I thought it'd be good maybe, Lee, to get your thoughts on finance and what's happening there. Cool. So a lot of things happening in terms of fixed rates going up at the moment. All the rates, you know, all the banks are announcing their fixed rate hikes. But I'm actually noticing the couple lenders either have not changed the variable rate or slightly decreased it.

And I'm finding quite a like a few of our clients are essentially preferring to stay at variable to take that lower rate. Yeah, well, variable rates, I mean, they definitely are coming down. So for those, you know, interest rates, they're actually looking better on the variable than they were before. Is that right? Correct.

Variable rates are better than fixed right now. Yeah. And I mean, look, interest rates for those who are keen to know more about some of the impacts on them, I guess in a nutshell, they aren't as closely correlated to housing as people think. You know, we can take a look at from 2012 movements till now. And it's all fair to say that interest rates have come down substantially.

However, for the majority of the decreases that were happening, Perth, Darwin and some other places were actually declining. So should they have made a blanket impact, we would have seen, you know, those markets rise as interest rates fell down or everywhere rise as interest rates fall down. So it's not as clear. There's a bit of a spread and an impact. But if you're keen to check out some of my thoughts on the impact, we've released a paper on our website in the InvestorKit white paper section.

And we'll let you guys check it out from there. But on the finance front, Lee, what's happening in terms of recent trends? Yeah. So the December 2021 lending indicators are out. In December 21 for housing in total, it did rise by 4.

4%, which was a record high of $32. 8 billion. And that was 26. 5% higher compared to a year ago. Huge.

So finance, just as the dips were coming, guess what? Recovery back in action. But these are huge levels from last year. Big difference. And both owner-occupier housing and investor housing rose.

So owner-occupier rose by 5. 3%. And that is driving the rise for the total new housing loan commitments. And then it was 2. 4% rise, which was a record high of $10.

3 billion for investor housing. So there was a few drops in the reports. And for those listening to some of the previous episodes, Lee had given some call-outs to a few declines in the housing trends. But as you can see from the most recent month's data or December ending data, that was quite short-lived and finance has gone back to its peak levels. Investor finances, quite interestingly, it looks like we've set a new record there.

Yeah. Like I mentioned just then, $10. 3 billion. Huge. Record high.

So investors are definitely back in action. But on that note of investors, there is something that I've really found where that was interesting is to do with investor activity and investor participation. I'll come to that later in the episode just because there's some exciting new research we're working on about investors and their participation in markets. And I think this finance will tie up quite closely in line with that. Yeah.

And look, in terms of we're a month in since we came Days on market, listing levels, sales volumes, we combine them together and call it inventory, and vendor discounting rates. So we're saying the things that we believe demonstrate pressure in a market. So how fast is something selling for? How many properties are there online? How much buying activity is occurring?

And do vendors give away deals more or less than before? Then, of course, housing market indicators, whilst great, they have speculation attached to them too. So what do we look for for some certainty? Rental market indicators, because we want a housing market to not only be supported by its housing trends in terms of sales, we also want the rental market to be healthy, to know that it's in demand in all aspects or multiple angles. So things like vacancy rates, the level of listings for lease, price growth for rents, and rental yield, because rental yields are another demonstration of cash flow.

And then lastly, we overlaid it with infrastructure projects, what's happening in the pipeline, the mix of things in the pipeline, the economic activity locally, the industry composition, and also supply levels. And we looked at supply levels in two ways too. So the last 15 months of building approvals for houses as a percentage of the total current dwellings level. And then the second thing is we looked at the last 10 years to see if we benchmark it against high areas of building approvals. How does it stack up?

Is it getting close to that high area benchmark? Or is it not very high and it's well below those riskier areas? So yeah, that's the methodology, Lee. It was loads of backtesting, loads of review of stuff, and we really enjoyed the exercise. And by we, I'm joined by a superstar on the team.

Her name is Junge, absolute gun. I haven't used that word in a while, gun. And yeah, she's phenomenal in her support she brings. So short-term trends, long-term trends, serviceability, sell, rental, projects, and supply. Perfect.

And the secondary question of that was, what was the top five location? Okay, drum roll. So the top five locations that we came up with were Tamworth, not in order, by the way, Tamworth, Dubbo, Albury, Wodonga. Wodonga falls on the Victoria side, so we can call it Albury for now. Wagga, or Wagga Wagga, and Lismore.

So very different parts of the New South Wales borders, but all some very strong markets, sub 650. Interesting. So obviously, they'll get the info on each of those locations further. Yeah, so if you're grabbing that report, these locations are individually deep dives. The report's totally free.

Every month for those tuning in, we give away reports and insights and data like this. It's our way to give back to the property investing community who's keen to get deep into the research. And we switch it up. And actually coming to your earlier point, Lee, I actually forgot to mention one part, which was the 650 piece. There were a few other markets that really did well, and places like Bathurst, Port Macquarie.

These are two phenomenal locations showing on our indicators. But the problem here was I wanted to make sure that it's not just using a median price of 650, running an exercise and looking at it and making sure it's all good. Orange was another one too. Now, the reason why we didn't do that was I actually also wanted to find a high frequency of properties for sale on REA and Domain, so realestate. com.

au and Domain, that are houses, rentable condition, and not on main roads and flood or bushfire impacted, like just livable, rentable, purchasable homes under 650. Because some things that many people realize is that the medians for Bathurst, Port Macquarie, and Orange and a few others, they definitely ticked the boxes to be included in the study, but I just didn't include them because it's actually impossible to find houses that were passing the baseline checks of high quality in those cities. Right. Well, that comes to the next question. So what made you choose this topic out of interest?

So what made me choose this topic? I didn't choose it. We put a poll. So yeah, something different. Where was the poll?

LinkedIn. So for those who want to get involved in stalking me on LinkedIn or just sending me all the hate mail or whatever you want to do, it's up to you. But if you want to jump on LinkedIn and send me a connection request, I'm super, super approachable. I'll do my best to respond. I'm not going to let it hang.

I'll definitely accept the request, have chats, reach out to me. But essentially on LinkedIn, I love hosting polls from time to time. And Junge and I were saying, instead of us coming up with the next topic and picking where, why don't we put it out there to the market and see what everyone thinks? And this was the winner. I think 59% of respondents chose New South Wales under 650.

And that was a poll of two different options or how many options? I think there was like four or five. Four or five, yeah. Makes sense. Like ask the community and see what they want, right?

Yeah, definitely. I mean, we didn't ask them which options. We just chose the options and then we let them choose the options. Put it out there for sure. Okay, perfect.

And what were some of the most interesting findings? Yeah, good one. I would say some of the most interesting findings were markets like Albury-Wodonga, as an example, and Lismore were two complete polar opposites. So I'll give you an example of what I mean. Albury-Wodonga, the strength in that market had been lifting up for a few years prior to the pandemic and what we've seen.

So whilst it was supercharged during the pandemic, like most markets of Australia, Albury-Wodonga was actually really well positioned and performing quite well even leading up to COVID. So that definitely demonstrates some pretty healthy consistency in that market. Then we've got Lismore on the opposite, which blew the lights out, absolutely blew the lights out during this pandemic period and what's happened. So it was less as a market that was picking up and showing some signs of change. I mean, look, it was still improving and still rising, but not to the depths of Albury-Wodonga and the pressure was building there.

But in this last 12 months, it's been huge. So that was something I learned that was quite interesting. The other thing I picked up was a few of these markets have a lot left in the tank. One thing that's commonly on people's minds right now is, is this growth sustainable? And I agree, it's such a great question to ask.

The short answer is it's not sustainable for how long you think sustainable should be. Like you can't hold something and expect 20 to 30% per annum for the next 10 years. It's not like that. But many of these markets, I feel even if you place the pressures of interest rate rises, so the stress testing of the 1% interest rate rise for most of these markets, still very affordable for people, even if that happened. The prices themselves are still quite affordable for many.

And many of these markets like the Wagga and the Tamworth, these two markets have not seen huge booms for the recent years prior this. And so I do feel that if we're trying to talk about the law of averages and start bringing it back to their long-term 30-year metrics, then there's room left in them for sure to keep pushing ahead. So I'd say those are the two findings. One was markets pre-COVID, post-COVID, and how much the separation was. And then second was, interestingly, I felt the legs in some of these markets is going to be quite strong.

Cool. So which one is your favorite out of the five and why? Oh, see, it's again, I'm very bad with recency bias. I literally just visited Tamworth and that was pretty cool and learned a lot there. But I would have to say it's tough.

I would have to say between, you know what, I might give the trophy to Albury. I might give the trophy to them. It's not to say that the others won't perform, so guys, don't hold me to it. The saying Albury is going to be the one here and everyone go by there. I feel the main thing is that there's a few things.

The confidence that it's had, obviously, pre-COVID and the improvement in that market was already gaining momentum. The second thing is, you know, it's still quite affordable for locals there, even after such a big change. What's the average house price? Well, I mean, you can find a lot of property prices sort of that $475 to $650. It's still very achievable there.

But the main thing here is that there isn't one part of the market that's let itself go. So what I mean by that is you're still going to find a tenant in your first open home. You're still going to have rents more than you thought you could get. You're going to have places sell in the first open home. You're going to still have places sell for more than you thought you could sell.

And even after all of that, there's still a whole lot of long-term potential through things in the pipeline, you know, the job market and stability. When you say things in the pipeline for infrastructure, is that it? Yeah, so the inland rail is one big thing where that's obviously going to impact the local area. But just even the local job market, it was quite resilient during the pandemic. So I think all of these things coming together will help it.