SSS – Jan/Mar 2019

Well we’re well and truly into 2019 and a lot has happened in the property investment space over the last few months. Main events are the Banking Royal Commission and reports of the Sydney and Melbourne property slow-down.

Royal Commission

Whilst this was a good thing and uncovered a lot of bad practices, bank shares actually increased after the final report was released. Pretty surprising and is an indicator that the market thinks that the worst is actually over for the big banks. It doesn’t look like any new laws will be introduced although consumers (you and I) may have to pay upfront in the future for lending advice. This will prove anti-competitive and end up shifting more power to the banks. We’ll have to wait and see for what happens after the federal election in May. Expect lending standards to still remain tight which will constrain supply and force up rents over time – a good thing for those that either already own property or who can qualify for new lending in the current market.

Market Slow-down

Yep, Sydney and Melbourne prices have come back in the last 12-18 months but this was anticipated and is very similar to what occurred in the late 90’s and early 00’s. It’s also one of the reasons why we have avoided recommending properties in these markets. Notwithstanding, residential rents in Melbourne and industrial property nationally are performing well. Only Sydney and Darwin saw rents fall in the last 12 months.

Key affordable markets to watch remain south-east Queensland and Adelaide. Queensland defence industry has again been boosted with the Loyal Wingman announcement by Boeing. Although still at concept stage, if aircraft manufacturing does go ahead, it will further boost the Queensland economy and of course land prices.

Going forward, we expect the commodity-based economies of QLD, SA, WA and NT to really begin leading around 2021-22. QLD and SA especially so with the submarine and frigate builds, emerging space industry, Land 400 and the large infrastructure projects planned in and around Brisbane.

Strategy

The Defencewealth strategy of TWO-50-TEN™ is based on acquiring a $2 million portfolio at 80-90% LVR over a 6-8 year timeframe. Once acquired we work to reduce the LVR to 50% over the next 4-7 years using a combination of capital growth, offset accounts and principal repayments. Once at 50% LVR, you will have some serious financial options but it will take time (10-15 years) to achieve. The new property packages we recommend are considered investment-grade based on experience and results and are selected for their balance in anticipated cash flow, capital growth and risk.

Quote

The best time to plant a tree was 20 years ago. The next best time is now – Chinese Proverb

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