Hello, and welcome to the Australians Money Puzzle podcast.

I'm James Kirkby.

Welcome aboard, everybody, Welcome aboard to our final property episode of the year, your final Tuesday Property Intelligence bulletin.

I'm looking at the numbers for the year and hey, you know, it's fine.

I think most people would be pretty happy.

Seven point eight percent is what we're looking at as a nation wide house price increase.

But as anyone will tell you, what property is local and my guest today will definitely be interested in elaborating on that theme.

It's Terry Rider of the Hotspoting Group, a regular on the show.

How are you, Terry?

I do well, James, and everything I've said so far certainly aligned with everything that we're seeing at the moment.

Very strong into the year.

But I think particular the momentum we're taking into twenty twenty six is very very powerful for markets right across the country.

Yeah, there has been quite a lift.

The only thing I suppose hanging over it all is about rates.

I see Caitlin Ezzi, the economist that cautality which we all knew once upon a time as core logic.

She says that there has been a slow down in these last few weeks, and that she says there is a some clear evidence of slow down in growth consistent with certain conditions happening at the moment, the big issue being, of course, people thought there would be a rate cut.

There isn't going to be a rate cut.

There is a distinct possibility the money market suggests we'll have rate rises.

We could have two rate rises.

The other part for investors vacancy rates.

There's a little bit of a lift in them, and they are showing what Louis Christopher calls tentative signs of easing, so slow down in the momentum of price increases in the last month or two, a bit of an easing in vacancy rates.

Is there a chance that the sort of growth we saw.

In twenty twenty five, with pretty chunky seven point percent nationwide, do you think we could have a bit of a still down for us in the early part of the year.

I think there's not the remotest possibility of that happening, James.

I think there's a tendency to place too much emphasis on short term data like the latest month SOSIA show slow down, and maybe the last two months and that's significant.

I think some analysts always overrate short term data way too much and we're looking for longer term trends.

In fact, we're seeing the opposite.

And one of the things that we do that I don't think anyone else does is that we monitor sales activity figures because we think that's a really forward, really strong forward indicator what will happen in prices.

And right now the sales activity figures the volumes, which means by demand is the strongest I think I've ever seen in so many play what we normally see that This is what I do every quarter for our report we published called the Price Predictor Index, and it's based on analysis of sales activity patterns in every suburban town in the country and it's a great forward indicator what will happen with prices, particularly in the short term.

And normally what we have is like lots of variations across the country of markets that are rising strongly, some of that are consistent, some of that are falling.

I often think we have a full speed market in Australia, boom markets, moderate growth stagnation and the places that are falling.

But right now everywhere has got strong by demand, and we could talk about the reasons why I think that's the case.

But we're going into twenty twenty six with really strong momentum in terms of by demand at a time of still shortages of everything that matters, and I think it's a formula for prices to rise next year.

And I think what they choose to do or not do with interest rate is not going to be particularly relevant.

Is that right?

You're thinking of investors.

It would matter to horn byers, wouldn't it.

I mean, I just think that economists and particular completely overrate the impact of interest rate movements when they're analyzing residential property markets.

And that's what causes big bank economists to continually get their forecast wrong.

What's going to happen with the property prices at the start of every year, they make their forecast.

The start of twenty twenty three, interest rates for rising, so they said prices were going to fall everywhere, and they didn't.

Process rose.

The start of twenty twenty four.

They said interest rates were stubbornly high, So prices we're going to fall everywhere, and they didn't.

We had prices rising.

And they keep making the same mistake that they think that interest rates are the paramount influence on property markets and we think they're not.

They may keep interest rates on hold at some point, they may make a cuttle two next year, or they may even have an increase, which some people are speculating will happen.

I don't think it matters that much.

If we had, say three increases, it would matter, But if we had one, I just think it's kind of irrelevant because there are right now, as there always is, far more powerful forces in the market driving by demand at a time of shortage.

That's those are the big factors, and we can talk about what they are.

And that demand if you can't just kind of snuffsys for us, what the key elements of that demand is that makes you so confident?

Yeah, Well, firstly, we're seeing strength and by demand rising demand in most market jurisdictions.

And this analysis we divide Australia into fourteen major jurisdictions, eight capital cities and six state regional markets.

And normally in this report we have winners, we have losers, and we have the steady ones in between.

And this latest analysis, which we haven't published yet but we will next week, there are no losers and there are only a couple of steady ones everywhere else is what we would classify as a winner because they have such strong momentum in terms of by demand, and we've seen markets which have been a little bit dormant recently, like Melbourne, like Hobart, like regional Tasmania, like regional New South Wales really coming to the four pointing to a very strong performance in twenty twenty six.

Right, Okay, we're going to look Obviously we look at this tell us about the year that's just passed.

So it seems to me Brisbane and Perth were a knockout in terms of performance, with Sydney and Melbourne actually dragging.

Is that how it went?

Yeah, And when the figures differ from one source to the next, it's amazing how much they have different numbers whether you look at domain or cotality or prop track, but the general patterns are pretty much the same and actual fact, most of them would have Darwin as number one for house price growth and that's certainly something that we expected because we saw it in that the sales activity patently huge uplifting by demand in Darwin sort of from the start of this year, and it's carried throughout the year to the point where it's now leading on price growth.

Brisbane's still very strong.

Perth, depending on whose figures you believe, still hanging there quite stubbornly, but you know it was the runaway leader in the past, say two to three years, but certainly not this year.

It's sort of starting to come back to the pack, and again depending on whose figures you look at, it's sort of no longer leading.

Some of the regional markets doing very well, particularly if you break it down into individual cities.

Regional Queensland locations like townsviall have been absolutely extraordinary in the last couple of years.

Clean the last twelve months, I'd say Darwin's the capital growth star for the past year across Australia, where just about every suburb's done better than twenty percent, which also doesn't surprise us because we could see the momentum in that market.

So yeah, those are the places that have done really well.

Sydney and Melbourne have lagged, but I think that will be different in twenty twenty six.

Melbourne.

It takes a while for the momentum in the market actually translates into the priced data that's published by the usual suspects, and we are seeing and hearing anecdotically that in Melbourne we're seeing extraordinary results happening at auctions and all over greater Melbourne, including in some of the more affordable areas.

You might expect the big auction results to be happening in the upmarket areas, but some of the locations like Frankston in the far Southwest and Point Cook in the far Southeast having the most extraordinary upcomes at auctions.

But that hasn't really flowed through into the price data yet for Melbourne, but I think we'll see that in twenty twenty six because there's certainly been a massive uplift in by demand in Melbourne markets in the second half.

Is that universal first home deposit?

Is that relevant to that?

Do you think it's certainly playing a part.

The reasons why we do have such strong by demand in Melbourne, but also elsewhere include the federal government schemes which are bringing additional demand into that lower end of the market.

And what we're seeing across Australia is that it's the affordability rules and it's the affordable parts of markets that are really leading the charge.

And that's true in Sydney.

It's true in Melbourne, it's true right across the country, and that's certainly been exacerbated by the federal government schemes.

We also have a force high population growth fueled by large numbers of overseas migrants coming into Australia in recent years.

It's been escapegoaded by some as the cause of the housing crisis.

It's not, but it's certainly part of the equation.

But the fact that James that's never talked about in media, but we think it's really important.

We rate this very highly, is that we have right now in Australia an absolutely unprecedented level of investment in major infrastructure.

If you look at all the projects across the country they are currently happening or planning, it's nine hundred billion dollars worth and we've never seen anything that big in Australia.

We believe at hot Spotting that infrastructure investment is a huge generation.

First Ly, vegan I make activity and therefore jobs and that translates into high demand for real estate.

And this has happening right across the country.

It's quite massive.

Like as I said, unprecedented.

Is there a particular project that kind of captures it.

Look some of the projects that sort of epitomize it are.

The biggest national infrastructure project right now is the inlande rail Link, which is a thirty three billion dollar project well under construction and where it's being built along through regional New South Wales and parts of Queensland and parts of because it's linking Melbourne to Brisbane.

We've seen in uplift and property markets with that construction, the Western Sydney Airport and the aertropolis surrounding.

That's like feeding steroids for a property market.

So when that's completed, that's going to have a massive impact.

But probably the thing that we rate the highest is a type of infrastructure has a huge impact and its huge right now, and that is hospitals.

When you build like a billion dollar hospital, there's like three or four thousand jobs in building it, and that brings demand into the location where it's happening.

But when it's finished, there's five or six thousand jobs in running it, and these people typically want to live close to where they're working and going every day, and that just brings massive impetus to the region in which it sits.

And right now in Australia, there are one hundred and forty four hospital projects of at least two hundred million dollars and that total is investment of one hundred and fifteen billion dollars.

So these projects are happening all across the country in regional centers like to Woomba and Bunderberg and Queensland.

There's a number of them happening in Sydney, there's a number of them happening in Melbourne, like Frankston for example.

One of the reasons why that market's really hot.

And so, yeah, one hundred whether it's one hundred and forty four major hospital projects right now extraordinary.

Does it attract investors as well because they know the excellent rental conditions I imagine in those catchments.

Well, that's right, And as we often say to people, you know, if you've got one of these big hospital projects and in the midst of a market on which you own property, you can be assured there's going to be strong rental demand.

And one of the things that tends to happen is universities and hospitals tend to cluster together in our major cities and so typically you'll have a region of a city where there's a major university campus and a big hospital's precinct.

Like in Melbourne around sort of Carlton Park World there's two university campuses and a big hospitals precinct, huge rental demand around that.

So one of these.

If you're an unverstor looking for a simple but workable formula to buy in areas that are going to outperform, look at where they're building these big hospital projects and act accordingly.

Examples include to Woomboro, a very strong diverse regional economy.

In Queensland, we've got a lot happening.

It's part of the inland railing.

It's the Queensland hup for that, but it's got one point two billion dollar hospital to be built there.

Bunderberg and Queensland also has one of these.

These are strong regional centers anyway, and they offer affordability to investors and above average rental years.

These hospital projects are game changes.

They take these markets to another level because it means that thousands of jobs and building them, but when they're finished, there'll be five thousand jobs at least in running them.

And you can imagine what goes to a regional city.

And I suppose compared to students.

It's twelve months of the year, it's not it doesn't have the seasonality after student accommodation from an investment for you.

Yeah, So generally speaking, I think this is a factor that it's not talked about in terms of why do we have prices rising everywhere and as quite unusual?

James to the latest figures from Totality and prop Track, et cetera, show that every city and every regional market has prices up in the latest month and also in annual terms.

That's really unusual.

We normally have boom markets and moderate markets and some markets with prices have fallen, but right there, prices are up everywhere.

One of the reasons I believe that's the case but not being discussed is this massive infrastructure investment and all the jobs it's generating and all the economic activity it's generating in different parts of the country and therefore demand for real estate it is.

Well, you have the facts to your fingertips, so it is a compelling argument.

Folks, will take a break, we'll be back in a moment.

Hello, welcome back to The Australian's Money Puzzle.

I'm talking to Terry Ryder of the Hot Spotting Group, Terry.

That was really interesting in the first part.

And though I was familiar in isolated examples of exactly what you're talking about where there had been infrastructure, specifically health infrastructure, hospital infrastructure, and where it had lifted the segment around that, I hadn't known that it was literally being repeated across the metropolitan centers at an extraordinary rate, at the rate you've never seen, and you've been in this game a long time.

Tell us just looking back on the year then and looking forward, if we put it out at the start of the show that it was everywhere but the big cities where we had some serious growth.

So basically last.

Year being the year twenty twenty five, last the year two.

Now the big cities city in Melbourne did about four or five percent each, but the national figure was closer to eight, right, it was seven point eight percent, and then there's these Perth and Brisbane were in the teens, right, thirteen percent or so.

What's your thoughts about whether that pattern will extend into twenty twenty six.

I think we're going to see change.

Ifact often say that the only constant in real estate is change, And if I'm doing a seminar presentation.

One of the things I quite often do is put three slides side by side where the price growth figures were sitting twelve months ago, where they were six months ago, and where they are now.

Quite significant differences, and I think we're going to see even or change to the pecking order in terms of price growth in twenty twenty six.

Certainly, I think Melbourne's going to be much higher, Perth will be lower.

Adelaide is also coming down the packet's been one of the national leaders, has had fantastic growth for five years, but we're now starting to see the numbers get smaller and smaller in terms of Adelaide inevitably, because that kind of growth cannot go on forever.

Five years is extraordinary in fact.

But I think we're going to see Hobart rising up the picking order.

We've seen a big uplift and buy demand there, and in the latter part of this year Melbourne we're seeing extraordinary uplift and by demand.

So we think that'll be showing up in the price data as we get into twenty twenty six, and so by this time next year, if we're having this conversation James, I'll expect us to be talking about Melbourne as one of the price gross leaders.

I mean, it's offering such good value for money right now.

That's why people are looking at People have been reticent to invest in Melbourne and Victoria because the taxes are so much higher and the state government legislation government relationship between landlords and tenants is particularly onerous to landlords.

But people are looking at the value for money and noticing that Melbourne is not only much cheaper than Sydney, but it's cheaper now than Brisbane, and it's about on a par with Adelaide and Perth in terms of meeting prices.

And people say, well, Melbourne's clearly undervalued.

It's overdue for a spurt of growth.

The population growth is really strong.

There's this huge infrastructure investment happening.

Melbourne's time has come, and I think by this time next year that will be shown up quite strongly in the price growth figures.

So Melbourne will be a leader.

Hobart will be there.

We've also seen some considerable life very recently in the Canberra market.

Of course, we never seem to talk about Canberra, and no one ever asked me about Canberra, but we've seen massive uplift recently in the unit market in Canberra, and this is a national trend which I know we've talked about in the past, but it's becoming strong and stronger.

More and more buying cohorts are opting for attached dwellings, not just for affordability, but all sorts of motivations, and we're seeing much better capital growth performance by units.

And of course traditionally houses on land have always outperformed units on capital growth, but that has changed in a majority of local government areas across Australia in the last twelve months, units have actually outperformed houses on price growth and that's becoming a bit of a paradigm shift and a real game changer for people who are looking for affordability.

It's becoming harder and harder to find, particularly in the big cities, knowing that units are now starting to perform very strongly on capital growth and also have better rental yields and houses typically, although you do also have higher costs in terms of body corporate charges.

But that's a bit of a game changer for people to keep in mind.

But Canberra particularly shows out in that regud big uplifted in buyer demand for units and affordability is probably part of the reason for that because the medium price for houses and cameras around a million dollars, but for units there's about six hundred thousand, so quite a differential there.

Okay, So just one last thing, Terry on this this looking forward.

You mentioned this by buyer demand all the time and it's what convinces you.

But what's your indicator of buyer demand?

Is there something in particularly you look at it?

Is there a couple of indicators, yes, well.

Or sales volumes.

We look at them quarter by quarter and we look at the pattern.

So and in the report I mentioned that we include this information in We have like a like our top fifty supercharged suburbs around the country and these are ones with the strongest pattern of rising sales volumes over four or five six quarters in a row.

And I have to later today whittle my very large short list down to just fifty because there's so many candidates at the moment.

Unit markets.

Unit Market's very prominent in that was house markets showing up in Brisbane, in Hobart, in camera with unit markets and parts of Sydney and parts of Melbourne, and what stands out is that it's the affordable parts of those markets.

We know that Sydney is a very expensive market, but the ones that really stand out, the precincts that stand out in Sydney are the ones that are dominated by unit sales and that Paramatta, for example, the Paramatta Local Company are very strong.

The inner west of Sydney, the city of Ride is very strong, but those are all markets where units dominate.

In Melbourne, we're seeing the outer ring suburbs for houses are the strongest markets, but also the inner city areas for units because those inner city areas like Carlton and Parkville and Kensington have very affordable units on offer, very close to the hospitals, the universities and the cbdotes.

So would back into that theme that the hardest part of the market is the entry level, the affordable end out suburbs.

Been and that's been pumped up by the federal schemes which are bringing more first home buyers into the market, and of course there's plenty of commentary that they're actually making affordability worse.

Taking the short term political view that there's more votes and throwing money at people than actually fixing the affordability problem.

So ultimately they're making it harder for more people to get into the market because affordability is of course one of the fundamental issues, and that's becoming more and more so.

Yes, so that's the issue.

Isn't that that we're all paying.

What's going on is we're paying more for the same houses for rather than an expansion of the number of houses that are there to buy.

Okay, we'll be back in a moment, folks.

Hello, welcome back to the Australian's Money Puzzle.

I'm talking to Terry Ryder of the hot Spotting group James Kirby here on the final show of the year.

Terry, I've just two questions.

Two final questions are for the year from our Property Investment Brigade.

Martin asks, can you explain about mortgage buffers?

Do they still stand now that the banks have been asked to curtail they're lending to high risk borrowers.

Really good question, market, So everybody you would know that the banks have been told to cool it on lending to borrowers who are taking more than six times their income.

They can't have more than twenty percent of their book out on that, so that is a targeted attempt to cool the market.

But as far as I know, the mortgage buffers are also there.

They haven't been that they still stand.

Don't They tell you have to you've to add three percent.

Basically, if you borrow a mortgage at five percent, you have to or six percent you must add three.

As far as testing whether you can repay, the bank adds three percent.

That's what the buffer is.

So you're not it sounds at start of the show you your projections for the yearhead are so solid that it sounds to me like interest rates or even you know, attempts by regulators to cool the market are not going to cool the market as far as you're concerned.

I think what talking about is sensible, but quite moderate.

It's not particularly draconian.

It's just seeking not so much to call the market, but to curtail the more dangerous end of the lending market, to make sure that they're not lending money to people are over leveraged.

So I've had quite a number of conversations with people in the industry, and it's generally felt that it's not going to have a dramatic impact yet unless they go a few steps further.

They feel they need to, but what they've been out so far isn't particularly strong.

I think it's a good thing.

It's a sensible thing, and APRO has taken action in the past, of course, to sort of to prevent property markets getting out of control and lending becoming too risky.

And I think it's one of the reasons why realiztate has been so solid in Australia.

We don't have collapses and property values except in those sort of high risk mining areas, but generally bricks and mortar is very safe and solid.

And one of the reasons, many reasons why I think that's the case in Australia is that we do have organizations like EPRA keeping an eye on things, making sure that things don't get too heated and that the lending doesn't get too risky, and that's been effective in the past.

It's certainly I mean, the delinquency rates et cetera at the banks remain almost insignificant.

There is uptick of late, but we've seen these little uptics regularly.

We have no idea whether this one's different, folks, but there's no evidence so far that is Thank you, Martin, they were that this is never advice, of course information.

On the final question, Adam, I love the show.

Can we have more shows on industrial property investing for mom and dad investors?

Yes, well it's almost a different world.

I bet Do you ever go near that area?

Terry?

Are you strictly residential?

Well, we're certainly were right here reports for residential investors, but we're we're doing more and more work with people who specialize in small commercial and infacted.

Earlier this year I did three seminars in the three biggest cities with a couple of other practitioners, one of whom was a bias agent and property advisory specializing in commercial for small investors.

And what we agreed is that the criteria we use for selecting good locations to invest in residential apply equally to industrial, commercial, retail, small retail storage units almost.

And it was really interesting actually being part of the because these were live seminars, not wominars, and so we're in the room with a couple hundred people at each one and a lot of people in the audience.

We're talking about what they're doing that there is definitely growing interest amongst property investors.

They want a little bit more than passive investment, which is what residential investment tends to be.

You buy something, I hope it got crows and value.

More and more people are interested in diverting or pivoting into small commercial because it can offer them things that residential maybe can't, such as serious cash flow.

Yeah yeah, yeah, longer leases, much better cash flow, serious net yields on which can be positive cash flow.

And there's a lot of people out there doing interesting things and all kinds of things storage units, small industrial workshops, small retail, small office buildings.

It's generally believed that you don't get the same level of capital growth typically with commercial as you do with residential, but the commercial specialists actually dispute that.

They say, if you select the right sort of property in the right locations, you can still have excellent capital growth as well as the cash flow.

Of course, the thing is, if you get a vacancy, it's a long vacancy, it's ness to risk.

It's not like if you rent a house and someone leaves for someone that's coming pretty quick, but actually so long leases in their long gaps.

We haven't time to go through the show, but I certainly had happy enough to do more shows on it.

I know we did one or two in the recent past, so thank you Adam.

Okay, and thank you Terry Ryder.

Lovely to have you on the show.

Best of look for the new year, and very interesting what you've told us on the show today about the big picture patterns out there this year, the return of the unit.

Very interesting your take that the obviously the infrastructure, particularly hospitals across the nation is underpinning strong investment conditions and also maybe the return of Melbourne to the four in the national and the pecking order as you call it.

All right, terrific, Hey, thank you Terry.

We'll talk again, okay, Jame's always a pleasure to talk to you.

All the best for Christmas and my twenty twenty sixth Bay everything that you wish for.

Thank you Terry, and thank you folks.

Okay, keep the emails rolling.

Love to have some more questions or comments or anything you wish to add to the debate and our chats on the property market the money Puzzle at the Australian dot com dot au.

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