How property trends reveal what the headlines hide

Nerd alert! Property nerds. The home for data-driven property investors. Where we uncover Australia's hot and cold markets, latest headlines and trends. Welcome to the Property Nerds.

This is Arjun, your co-host and co-founder of the Property Nerds. And I'm joined by Kent. Hello, Kent. Hi, Arjun. It's lockdown day, isn't it?

Well, for me, yes, but I'm not sure it's the same for you, is it? No, still normal up here. Normal, very normal. Nobody's locked down. Nobody misbehaves.

Yeah, well, you know, the case numbers have been rocketing up here in Sydney, but hopefully we see a better end to it soon. So, yeah, that's kind of what's been happening over this way, Kent. And, you know, just to give listeners in who are tuning in for the first time to the show, my name's Arjun, as mentioned earlier, and I'm the founder of InvestorKit Buyers Agency. We help a lot of investors build out and scale out their property portfolios using a lot of interesting data and national presence. And I might let you do a bit of an intro on who you are, Kent.

Yeah, I'm a true data geek. I play around with all sorts of data and analytics and mapping tools called Suburb Trends. So if anyone wants to see what I'm up to, go to suburbtrends. com. Awesome, Kent.

And I know we've been chatting a lot on a few different Facebook groups of late. And, you know, there's a lot out there, obviously, for people to jump in on. But there's a couple, you know, that are really standing out. And I guess just to give some context to the importance of Facebook groups is whilst we love sharing data and insights on what we see and what the numbers show, the Facebook groups really give us that on the ground presence, don't they? Yeah, well, I was preparing for the show.

We normally pick out our headlines, but sometimes the headlines don't necessarily capture everything that's going on and the sentiment or some of the questions being asked by investor groups. So there's one particular group that I found has been rather respectful of fellow members. And equally, there's no spruiking or no products being flogged on it. It's AUS or Aus Property Investors. And these guys have been running a Facebook group that I've just been watching the numbers climb.

It's been amazing. I think they're up to 7,000 or 8,000 members now. But I've been using that as a bit of a test to see what people are asking about to really gauge sentiment. And one of the hot topics is a lot of focus, a lot of questions still around places like Geelong, places like Lake Central Coast, which I want to cover a little bit today. It's still that commutable distance lifestyle location still seems to be the hot topic amongst these investor groups.

And what you pointed out in those investor groups are just phenomenal with regards to that real question, real life at that moment type question. None of these headlines, which sometimes capture things six months later or two or three months too late. Another group that I'm quite involved in is called Property Talk Australia. And there are also just phenomenal questions flying around, everyone getting involved. So, you know, for any property investors out there, whether you're on the socials or not, check out some of these Facebook groups.

Look, they're not run by us. We just love giving shout outs to where there's a lot of capture of real opinions, real data from people, investors, tenants, the like. And I think, you know, what a lot of questions have also been around has been some of the impacts that we think could be occurring further on from the current lockdown in Sydney. So another lockdown is passing the baton around the states, really. So Victoria has their turns.

Brisbane does the mini three day ones, as does Adelaide. And then you get over to New South Wales and Sydney in particular. And we've got a pretty heavy one. We already the two weeks and coming up to the third. Kent, what are your thoughts on, I guess, that imbalance that we saw in the regional and capital city markets beforehand?

Does this add more fire to it? It does. Is this just business as usual? What do you think? I think what it's going to do, I'm going to pick on a region, a market, Central Coast, Gosford.

And looking at that particular market, it's been one of the hottest markets leading up to COVID. It was already hot. But as soon as COVID hit, it was almost the poster child of the exodus. And what's happened recently today, I pulled up some charts on Gosford. I spoke to a couple of buyers agents.

So I'm going to say hello to Michelle and Linda, buyers agents up in Gosford. And we had a bit of a chat about what's happening on the ground there. And what I found in the data was the listings volumes had ticked up slightly, which is really interesting because one of our theories was that inventory levels have been very, very low. But when you compare the charts, listings down, inventory levels down, a lot of markets haven't been tested. What we needed to do is we need to see listings volumes come back up to truly see if this is entirely supply driven or whether it's a solid balance between demand and supply.

And what's happened in Gosford is listings volumes crept up a bit, but inventory levels are still creeping down. So I'm forecasting it to be the tightest market in terms of inventory analysis, the tightest market for the balance of this year. It is so white hot that no matter what, even an increase in listings volumes of 5% or 10% is still not moving the dial. This is a very good call out because the supply and demand imbalances, when they occur, people often think it's just roaring demand and that's just always what it is. But we're seeing this shift across so many regions now where, say, this time last year, the listings reduction, the fall off the cliff in listings, when you and I analyzed the data on month on month, we were often seeing that that was the biggest reason for the inventory fall.

I feel this last quarter and what we're seeing ahead is sustaining low inventory, not through new listings count getting lower, but actually sales volumes increasing. It's almost flipping the other way now. The huge supply reduction was the first half of this COVID period as such. And then now we're going to the second half, which is seeing listings being tested, new listings coming on and sales volumes rapidly firing away as people continue to absorb the stock. Now, Central Coast, you pick out a really good area, Kent, with regards to some of the regional shifts.

The price growth for those who've been closely watching this market, it's definitely been in some of the top percentiles in the country for price growth. And, you know, I was just taking a look at a particular case study for one of our clients in Killarney Vale, a suburb in the Wyong region, actually an SA3 region that, if I'm correct, Kent, we placed in our top 20 regions report as well. Yay to us. Yay, us. Woo-hoo.

We love it when things go right. And with that suburb, that was tracking at close to 30% uptick in median price growth over the last 12 months, which is just huge. Now, with regards to regional markets and what we're seeing, whilst we are going into this lockdown and back and forth and more movements likely to occur, I genuinely feel that the moving is slowly going to, you know, it's going to fall off the tongue with regards to COVID movements. If this just continues for another 6 to 12 months, which in some areas it's been happening for a fair while, it won't be a COVID movement any longer. I feel it's going to be just a lifestyle shift and something that people are just taking up irrespective of COVID.

What are your thoughts on that? Well, actually, I've got a question for you, Arjun. When people are moving away from the city into a new area, specifically these region areas, what are some of the questions and the due diligence they do? And the second half of the question, what are some of the things that they overlook and ignore? And the big one for me is, are they interested in NBN speeds and reliability in some of these locations?

I think you're onto something there. Funnily enough, when I speak to people, I often hear the big overlooked one is actually the internet. Life is great, but internet and mobile dead spots hit you all over. And then it becomes a question of, like, this isn't as fun as I thought, right? I mean, it's not always good if you're trying to load a web page and you can have two piccolos come at you, you know, by the time that web page loads, is it, Kent, from what you're experiencing of late?

Well, I mean, I'm in Metro Newcastle, and I think I'm allowed to say the word sucks. The NBN here sucks. It's awful. And, you know, I've got a backup 4G as well as a brand new NBN line still into the house, but it plugs into 3,000-year-old copper wires out the front. And it's just got me thinking, you know, the exodus, as I like to call it, I just wonder, people are doing, you know, we do due diligence on all sorts of things, but I just wonder, are people actually investigating how robust and reliable their internet connection is before they think they can work from Zoom for the rest of their life?

Yeah, I mean, big call out for sure. Alongside some of the rent and region movements, Kent, you know, you and I have also been picking out a few headlines, and we love to check out what's happening out

And the vacancy numbers have just plummeted across the region. So, you know, I don't think it's overstated when we say it's a crisis in the regions. But if you go back, say, two years ago, 24 months ago, if I went across all the regions, so this is all the markets outside of the capital cities, 24 months ago, we counted 10,700 vacant properties. There were rentals that were still sitting there after three weeks, fairly normal. Now, three months ago, that was 4,900 vacant properties.

Today, that's down to 3,580 across all of the regions outside of the capital cities. It's phenomenal. It's next to nothing. That type of shift is, you know, both promising and unhealthy at the same time, right? I mean, promising for investors who are likely to see extremely quick take up in properties and very, very strong rent rises, but unhealthy for a sustainability of a rental market.

This type of, you know, volatile shift of vacancies coming down and just not much investor activity to have the rental market have enough stock to meet that demand, it creates massive rental shifts. And this is where we've been looking into the yields, right? And trying to understand what's been happening across the country and what we're seeing across bedrooms, what we're seeing across different locations. You were quite surprised, weren't you, when you started to look into the yields of three and four bedrooms, because it wasn't as, I guess, separated as we thought. Yes.

In the early days when COVID hit, we saw a big shift to the larger properties. So certainly price movement in terms of rents, price movements in terms of sales. We noticed a very stark difference between the four bedroom stuff and the rest. So the larger property medians or stratified medians of four beds really did surge. And I held on to that.

And today I expected to see that reflected in the yield estimates. And it appears what's happened is the asking prices and sale prices have caught up with that. So everyone's in on it now and can see what's happening. But what's happened now is we've done an analysis. I've done an analysis of two bedroom, three bedroom and four bedrooms by SA3s and calculated some of the yields.

And what I'm seeing here is that the highest yield is the three bedroom, which is kind of on par with the norm. Whereas early, about a year ago, it was very biased towards the four bedders. So yeah, very interesting. 116 SA3s had 5% or higher yield for three bedrooms, which is really high. And yields are a very interesting topic, Kent, because doesn't it just annoy you when you see those top 50 highest yield, top 25, top 100 highest yield locations?

Because I'm sure it's not just me, but 75% of these locations or more tend to be in areas that I can't recall ever seeing or knowing about from an investment sense. I mean, out in some very remote communities where we're just not seeing that capital growth or capital appreciation alongside it. Is that the same thought from your end? Oh, look, you're going to wind me up now. So obviously, we've got a problem when we measure down to the suburb level in many, if not most cases.

So let's just go back to it. We cover this a fair bit on the show, but median prices when we're analyzing a particular suburb can be very volatile. It could be volatile because there's too few sales. It could be volatile because it's along the beach and it's often two or three distributions in one. You've got the market that sits along the beach, the market that sits just back from the beach and the rest.

So sometimes when you use the median to calculate a yield, you're really creating a bit of a risk because the second risk you've got is calculating the median rents. Now, usually rents are a little bit more normally distributed. So sales misbehave a fair bit in terms of their price distributions. Rents behave a lot more. So you're not really making most of your mistakes on the rental median.

You're making your mistakes on the sale median when you go down to the suburb level. So I think really what you want to do is measure up your yields at a regional level and then drill down to the property and forget the suburb. Very, very solid advice, Kent. And this takes me to another thinking that I've always had was yields and seeking the perfect yield for your investment journey is something that many investors make certain mistakes on. One group of investors seems that yield and growth can't exist with each other, which I don't think is correct at all.

But when you do look at the history of, I guess, the extremes of yields, it's a very true statement. When you start looking at those markets that today sit in the 2% to 4% yield range versus the 8% to 12%, on the extremes of this conversation, you get massive variances in capital growth performance. So a very true statement. But when I often see the average or typical investor go, should I look for yield or should I look for growth? I'm confident that they aren't saying, let me go find a 10% yield place tomorrow versus a 2% yielding location and what growth it might result in.

Many, I feel, are kind of having that conversation where they're thinking of, does a sweet spot exist is actually more so their question, not a cash flow versus growth game. And the truth is the sweet spot does exist. If you think about just the Central Coast, for example, we talked about that earlier. This time last year and earlier, many of the locations across the suburb of Wyong, the region of Wyong, had suburbs where 3. 8% to 4.

5% yield or 4. 25% was very possible. Now, depending on the interest rate and how much of a deposit you have on the property, that can yield you a rent that does cover your interest bills, rates, water, insurance, outgoings, all that sort of stuff. Not quite your principal and interest, but at least your interest and outgoings. Now, today we talked about the growth of some of these markets being 20% to 30% even over the last 12 months.

Definitely shows a sweet spot. What I've often come to look at is that yield suppression is what you want to have an investment after you've purchased it. And this is where simply put, a location that was a 4% yielder before has now got down to 2. 5% or 3% because of how much the growth has outpaced the rental growth. That can happen and you don't necessarily need to look for the 2.

5%, 3% yielding location after that's already happened. Ideally, in the best world, you'd like to have something that's yielding between 4% and 5% that then drops down because of the fast growth, which is a perfect example in the Central Coast region. Ken, what is your thoughts on that trade-off between yield and growth? Well, I think you've touched on an interesting thing. People start to list down all of their critical qualities.

I'm going to throw an acronym at you, CTQs. I learned that from Six Sigma. I know you're impressed. Anyway, so people add all of these filters and then the more filters you add, the more you lock out some gems and you just ignore them. And so you can create too many filters.

So I think the key is, you mentioned it, create a floor, that's fine. Do a lot of this stuff at the regional level just to identify at a macro level, this region, when I say region, this SA3, this statistical area could be anywhere in the country, meets certain criteria. Then once you get that, then you say, okay, now I'm diving in and looking property by property rather than that silly suburb level stuff. So you start playing around with suburbs and you start filtering out suburbs based on your six or seven filters. Boy, it just destroys the opportunity.

Yeah, and I think the filtering out, you can just kill it with two statements, regional versus capital city. And the second statement is cashflow capital growth. As soon as you've been having those two statements around your mind, there's likely a lot of cutout that's going to occur. And I'd question if that is going to be the true best possible way to look for an investment property as soon as you cut out so much. So I feel that filtering out process when people are looking for investment properties is so critical for making sure that you aren't canceling out too much or you're not stuck in a region where you just have too much choice.

So from a yield perspective, I think just to summarize today's episode, Ken, I feel it's such an important discussion to be having now, especially with rental movements, the way they're happening, interest rates and where they are. I encourage investors all over just to play around with our free market conditions index report that we've got online at the moment. You can visit thepropertynerds. com. au and what you'll get is a whole bunch of detail across yield, inventory, days on market, the few key statistics that we talk about that tell us, is the property going to rent for a healthy amount?

Are properties going to rent quickly? Are they selling faster? What's the supply and demand imbalance? You can go play around with your suburb, other suburbs that you're interested in for free using our market conditions index report. And that's on thepropertynerds.

com. au.