Changing demographics and shortages of stock continue to provide great opportunities for property investors. Despite recent commentary that shares are an even or better bet than the property market, Portfolio Management Services is still out buying, finding plenty of property that fits its criteria for investment.
Portfolio Management Services managing director Jock Bing says that while most of the commentary is general, in practice there are huge differences in opportunities between each of the eastern-state capitals and the major cities around them.
“If you want to buy investment property in the eastern capitals, the best buys are in metropolitan Brisbane,” Mr Bing said. “You can get 5 per cent returns there, prices like-for-like are lower than in Sydney and Melbourne and the demand for accommodation is slightly higher.”
Mr Bing said getting the same kind of returns in Sydney was becoming harder but still possible. While comparable properties in Sydney and Melbourne were currently priced similarly, rents in Sydney were typically higher. The income differential pointed to a likely increase in Sydney prices.
“We haven’t bought houses in the Melbourne market of any consequence for about two years,” Mr Bing said. “Geelong is a different story though. You can get cheap houses in Geelong bringing in amazing rents. Combine that with record low interest rates and there are some great opportunities.”
It comes as the Australian Financial Review reports predictions from Platinum Asset Management founder Kerr Neilson that house prices are unlikely to beat inflation over the next decade.
“Much of the commentary is very general, based on averages, assumptions and long-term predictions,” Mr Bing said. “At the moment we’re out buying. Interest rates are at record lows and we’re finding property where you couldn’t replace the assets for the cost we’re buying them at.”
He said that while prices may be firm in some markets, they were not overblown. The supply of housing stock had not kept up with strong population growth; this was reflected in the market and unlikely to change soon.
It was a view echoed this week by ANZ senior property analyst David Cannington. Quoted in a Fairfax report, he said 14 years of construction lagging population growth had built up a shortage of about 300,000 dwellings nationally. This was the equivalent of about two years of building; it would take years of excess construction to unwind.
Mr Bing said Portfolio Management Services would continue to seek property that fit its criteria for successful property investment.
“You can always find something,” he said. “At the moment in Brisbane we might look at five properties and buy one. In Sydney we might look at 15, in Melbourne it is more like 20-40.”
“If you want to make money you need to look suburb by suburb for places that will go somewhere over time. Everything will go up over 10 years, the trick is to find property that will double in seven.”
Portfolio Management Services has averaged total returns of 11.2 per cent per year for the past 41 years, according to independent financial markets analyst and research company, Atchison Consultants. Over the past 11 years the average return has been 9.3 per cent. This compares favourably with all other benchmarks, including the Australia-wide REIA performance which captures the mining boom spike in some locations.