Ben Kingsley talks drivers of growth | Property Investment Australia

Hello everyone, it is Jane Slacksmith here and a special hello to our clubbers. Well, it's almost the end of March and March has been our capital growth month and every Wednesday we have spoken to a property expert about capital growth. We've been talking about lead indicators, lag indicators, what's happening in the market. And I am so very, very excited to be introducing our next guest who is our final guest and well, what a guest. He the founder and director of Empower Wealth. He's the co host of Property Couch, probably the biggest property podcast out there in Australia. I say with some envy. And you could see him on tv, you'll see him on the news, you'll see him on the project, you'll see him in the air. Qantas, Jetstar. Oh my God, this guy's everywhere. He knows everything. He's just opened new offices in the last month in Sydney as well as Melbourne. We're talking world domination. It is Ben Kingsley, the amazing past president of the Property Investors Professionals of Australia as well. Hello Ben, and welcome.

Now that's a big plug. I mean, you know, I don't know everything, trust me, I just, you know, I'm a student of life and I'm a student of property, but I do my best. Thanks for having me, Jade.

Well, Ben, it is so lovely to have you here and thank you so much for joining us today.

No problem at all.

Now look, when we're talking about capital growth and we're talking about the market, a lot of people are fearful as we know, about where to buy, what to buy. And you and I have had these conversations in the past that it all comes down to research. How does capital growth fit into that?

It's a massive part. Ultimately there's the two big parts, which is the cash flow to survive, but the cash flow keeps you in the game. And from our point of view, we're really focused on the capital growth in terms of what we can take out of the market. So, you know, I've always been a big believer that, you know, even if you're trying to chase yield down, you want to try and get some growth in there as well. If you don't get that growth, the reality is if you're going to gear yourself, you could be giving that growth to all of the shareholders of the banks if there's not enough of it, considering the interest that you pay over the journey.

Absolutely. And I guess the story is, you know, if you've got a 10 year plan and you've got a property that's making you 100 bucks a week, that's great. But if it's still only worth $300,000 in 10 years, you probably went backwards.

Correct. That's why we want to try and find the areas where there's either great capital growth because it's a high emotional owner occupied location, such as our inner city fringes where we've seen proven retail history and we see big jobs growth and high incomes and pressure in that sort of livability in terms of the human interests and human behaviour going around that and there's status associated with that as well. But then when we push out to some of the middle ring areas of cities, we're starting to see a little bit of that gentrification going on in those areas and we can get really nice percentage growth in those locations. And then when we see regional areas that have good diversified economies that are also showing good strong economies around population and infrastructure and amenity, we'll see some pressure on those values in those locations as well as affordability starts to bite in the bigger cities.

So you picked up on a lot of these kind of indicators of growth. If we can just go back to those. You know, you mentioned a few things that actually make up that, you know, owner occupied kind of attraction to the market. How important is having owner occupiers in an area, not them full of, an area full of renters?

Well, I mean, we only need to look anecdotally and the evidence suggests that in our mining towns that the lifestyle test that they're trying to portray in those areas, they'll go there for the big incomes and that will see enormous growth over a very short period of time led by investors, where you might have a 70% mix of investors and a 30% owner occupiers, but once the momentum in the mining sector drops off, you're basically saying that who's left holding the baby? And the reality is those areas can't sustain themselves because they don't have that really high level of owner occupier appeal and they don't have that high level of livability. And so you don't have that underlying level of demand to continue to keep the property prices higher and continuing to grow.

It's interesting, isn't it? I've even in some of the apartments that I've. The blocks that I've bought in, I've applied that almost to the blocks. I really want to have more. I know occupiers, they're keeping an eye on the tenants. Almost like the micromanagement of that isn't it?

Yeah, totally, it is. I mean, ultimately you want to be house proud, you want to have a good impression for anyone who potentially buys that property over time. So for me, the reality is, yeah, you know, we certainly talk macro. You know, there's 15, 16,000 suburbs across Australia. We're now sort of over 9, you know, 9 million dwellings in excess. So it's difficult. So we absolutely want the microcosm of the street appeal. We want everything to sort of be going right. So if we ever do have to sell the property or to push the value higher, we want everyone to love the other properties in the street as well. If we only had one great property in the street and the rest of them were all derelict and also had, I suppose, not so likable tenants or people living in that area, that probably is going to really struggle, even if it does have brilliant owner occupier appeal. So it's that combination of getting the city right, then getting down to the local government area, then getting down to the suburb, then getting down to the street, and then basically getting into the property itself.

So let's talk about some of those other drivers that you mentioned. Income, infrastructure. What are the big ones that you would put on your list if you're trying to find that right area?

Well, I think the ones that we can measure pretty easily in terms of always the leading indicators. I've got things like stock on market, stock for rent, search engine portal activity, auction clearance rate, planning approvals, infrastructure approvals, vacancy rates, days on market. They're to me, the leading indicators. How we actually measure our success, however, is median property values, vacancy rates and finance activity. So I like to overlay demographics and income into a particular area and have a look at my age profile. I don't want to be going into it a regional town where everyone's going to die in, you know, that's. I heard a very great line the other day, watching a video where it says where the average age was deceased. I thought, that's quite a funny line. I think I'll use that more often.

It sounds like a cruise I took in Alaska once when they, they put on the empty coffins. Because that couple always died every cruise. And I thought, oh, maybe it's not my age group.

They do have morgues on the big ships. They're absolutely right. I'm. I always talk about shipping is for the overfed nearly dead. But I do like cruising, so don't get me wrong, that's just a bit of a joke. Everyone, please, no offense meant, but yeah, they're the realities. I mean, ultimately we want to go into areas where the population is ideally positioned between 35 and 50. And we want to have really strong diversified jobs with really strong upside on income growth. Because the reality is you can have 50,000 people move to a location, everyone goes, look at the population growth, look at the level of demand. But there's a ceiling in terms of where most prices will get to. Because the incomes that they're earning might only be tourism incomes and they're working at a coffee shop and that's 35 plus your weekend levies and your override. So it's not going to give me the $100,000 plus passive incomes that I need. And if it's full of retirees who have lots of wealth, well that's great. But the reality is they're diminishing their wealth that are actually not growing it. From that point of view, it's always, you've got to be careful about making sure you've got a big enough sample size. And I always say that the best sample size, if you're looking at the demographics, is the significant urban areas. We focus in on the top 20, which is basically the 20 biggest cities in Australia. And they are obviously a mixture of regional and city located and major, our big megacities being Sydney and Melbourne.

So tell me this, if people are trying to find that kind of income growth figures, how often do they come out and where could they find them?

The best place to start is obviously with the census data and looking at the splits in the census data. So you can go into, inside the census they have these little nice, helpful, little easy postcode searches, searches that you can do. So you can certainly start there. You can aggregate that into tables if you're a more sophisticated person. And I know Jane, I think you've done this for your students, haven't you, where you've aggregated a lot of that information. So if people become students of yours, you've got all this amazing information readily available because the biggest thing for great research is time. That's why we created research pieces around trying to aggregate a lot of that data. Location score is ours that we use. But it's very important that things like the stock on market rent and those things are really ascertained. But then I want to take a deeper dive in to profiling the local government area. I wouldn't be too caught up in the actual profile of every suburb. It's plus people that we're looking for to try and get a sense of the potential Uplift in an area.

I have to say, when I was doing my searches, I was always very comforted by the fact if a couple of the suburbs came up next to each other because it was very unlikely the demographics would change greatly. And I was looking at a three bedroom house in one and a two bedroom unit in the other. You know, people, as you said, cluster together. Location score, you know, you mentioned that. Now how many indicators does the location score look at? And can you just take us a few those?

Yeah, so that's got the eight. So we've got the things like stock on market, you know, search engine portal option, clearance rates, vacancy rates, days on market. They're the sort of main ones, the split of owner occupier versus renter. They're the ones that come together. So we aggregate those eight. But what we're doing is we're putting a special weighting on each one of them. So each one of them doesn't have a set weighting or an equal weighting. We basically have higher priorities for things like auction clearance rates as an example. But there's some areas where you may not have auctions. So in those areas the weight may be a bit lower. So there is a, you know, Jeremy shepherd does a great job in putting those weightings together. And that's when we come up with an overall score to help people understand which areas. And coming back to your point, when we do our analysis, we love clusters of those scores as well. And we also like when the city itself is also on the rise, where the score is on the rise as opposed to on the decline. So you might still be able to find in Sydney some really high scores. And those suburbs are still getting good capital growth, but the overall city is starting to cool. So we'd think that even in the best markets, some of those suburbs could be caught up into a softening approach as opposed to, you know, continuing on the incredible run that Sydney's had. So we like to look macro first and then come into the suburbs.

So just for those that would like to check out location score, I've got it up on my screen. This is what you look at and I've got the link there. Locationscore.com you can go through and check out that information. I know we use that and recommend it to our students and we talk about how to use that as one of the tools to start narrowing down your suburbs. So as much information as you can get the best. And it's great to see that we've got an extra product six months old now.

You know, it's a time saver and it just points you in the right direction. There's so many people who buy suburbs, you know, buy houses in the street that they live in or the suburb that they live in. That's not investing. Investing is about getting good return. You know, using the way in which you do your analysis and you sort of start to do your mapping. All those things are really important to improve your ability to get an outperform result.

So we've talked a bit about the owner occupier attraction, the increase income. What are some other of the indicators of capital growth that you've seen in the past that we could actually look at now if we're actually assessing a suburb or an area?

Well, obviously historical performance is pretty. When a suburb goes through, if we're talking about really strong capital growth areas, we normally find that the very top 25% of the quartile is volatile. So if we're talking about suburbs that might have a 1 million plus median range, that top 25% in that area is quite bouncy and the bottom 25% is less bouncy. We would always still be saying to people, don't necessarily from an investment point of view, buy the very, very best house in the suburb even though it might have strong under occupied bill. You're just not going to get the yield at that real high price point. So we would still like to play within the bandwidth of around, you know, sort of as low As 25% below median where we can obviously use your Trident strategy and add value or in some cases we're happy to go to say 10, 15% above the median because we've got just a beautiful asset there, you know, and it's just a gem that just needs to have a quick polish. So from that point of view, when we get to those sort of price points. But coming back to your point before, when they gentrify that when we do a regression analysis on them, they actually are pretty good at holding that trend line where they move. If you're a share person, you know, you've got green chips and then blue chip stocks. So they move into that next phase of being a really great investment asset. So when I look at that, I'm looking for those suburbs that may be neighboring that where I'm going to see the copycat approach or the ripple effect that's going to take, you know, take shape in those areas. But I also definitely need, you know, I need the high street, I need the strip shops, you know, the little restaurants, the bars, the cafes. I still am looking for some medium density there because I want to be able to support the Thai restaurant, the Indian restaurant, the wine bar. So I'm happy for that medium and high density to be circling around. But I'm just not going to buy those assets. I'm going to buy on the fringes of those in the smaller blocks where I've got a better land to asset ratio.

And I think it's, it kind of brings up, you know, you mentioned earlier that you're looking at 20 cities across Australia when you're buying for your clients with your buyer's agency business. And you know, obviously that there's not that many capital cities. So we've got some regional areas in there and there's that affordability in the, and we call them the commuter cities. They're important. Those people who don't want to venture out to, you know, the Wollongongs, Newcastles et cetera, but want to stay in the city and look at a suburb. How do you look at maybe something that's cheaper, maybe the townhouse or the unit in, in a good quality suburb as opposed to the house they can't afford?

That's a great question Jane, because every city is different. You know, we buy all over Australia as you know and the tolerances of people and the mindset of people, of the buyer plays a fascinating role in what we're talking about here. So I'll give you an example. In Sydney they started building more units than houses since the early 1990s. Now Melbourne has only started building more units than houses since 2012. So units are very accepted as an owner occupied option because it's generational now. So people who want to live in one of the most beautiful cities in the world with one of the most magnificent harbors in the world, they are ready to accommodate that. So you see capital growth in Sydney in the unit market go pretty well as much as it's going as well as the housing market. Now you come to Melbourne and what you're seeing in Melbourne is probably an underperforming unit market but certainly a very, very strong housing market over the past 10 years. But things are changing. So the difference between the housing market and the unit market is what we call the townhouse market, the villa market, the ones with. And so the Melbourne people are really there now. They're very comfortable in having the three bedroom townhouse, still two bathrooms, they still want that separate bathroom. And then now the next generation is to go over to being very accepting of units. So we're probably a decade, we're in that transition decade where units will be well supported and potentially some good capital growth in unit markets in Melbourne over time. Now we go to other markets like Queensland. Unit markets on their own title, sorry townhouse markets on their own title still perceived as being reasonable, but we're in that early stages. The unit market yet hasn't quite got that acceptance. So they're probably 15 years away from having units as being a really acceptable accommodation, especially in the medium and high rise stuff. That's what I'm talking about here. Units in the lower rise for on a site where you still got that high land to asset ratio that works. Units in every other market, unless you're chasing yield, is probably, you know, a challenge at best to get into those markets. I mean I've got one in Cairns which is a townhouse, but it's part of a unit development complex, probably 6, 20 in the block. You know that's in myself managed super fund that's a little bit more risky. You know I'm getting a gross rental yield of just under 11% on that property so it's doing well. But it's been bought in the super fund for a cash cow as opposed to a growth asset.

So you knew ahead of time what the strategy was for that and then you went and found the property to suit it rather than people who buy property and go oh my gosh, now what's the strategy?

That's right, that's a really depressed marketplace. So that, that, that particular townhouse which is a three bedroom, two bathroom townhouse, this might surprise people but in 2000, I think 2015, I think I bought it, I paid $150,000 for a three bedroom, two bathroom townHouse. Now people are what I mean, that originally sold for 237,000 back in the peak of 2008. So the poor person who bought it before me had seen no growth, maybe a little bit of cash flow that was coming off it, but hasn't seen a good return. I bought it in the super fund because the reality is it's quite simple that in a super fund if that spikes again, I potentially get a really good. And it's been growing a double digit compounding return since I bought it, but not a big number. I mean I think it's about 185, 190 now, but still pretty strong numbers over the last couple of years. Now that goes back to 230, 250. I can then sit back and say well in my self managed super fund, 10% capital growth that I have to pay. I'm out of that now. I'm not advocating everyone set up self managed super funds. Please don't just follow what I say because I do that. It's not what we're about. But that's a strategy based on the reality of that story. All of the other properties that we've got in our portfolio are all growth assets closer to CBD's terrace homes. Those types of things is what we've been buying in our journey.

Now I see we've got people that are online watching and I've seen some people pop up into the lobby and out. If you do have a question, please click on that link and I'm sure Ben will be very happy to answer it. But in the few minutes that we have left and let's take a look around Australia at the moment, look at the markets and your thoughts and commentary on what's happening and what potentially happening for the rest of 2018. I'm going to put you on the spot.

Yeah, yeah. So the data that we use is, our main data that we use is measuring demand and supply. So obviously there's the location score. We're probably extracting 3 to 4 million data points each month. We roll that data over and we measure the demand and supply and you know, we've got a few variables that we also factor in on that. Now what we can tell you is definitely Sydney's calling and now our data is definitely showing that. But we are still seeing Melbourne holding reasonably well. So a lot of people are calling Melbourne a little early in our view. But there is a little caveat on that and that our data, the January data is never great. It's a bit choppy because no one buys properties in January. We've got the February data, we're in March now. So we're a couple of days away from running our next lot of data which is April. So these first few months are still a little bit in question. So don't hold me firm. That's my disclaimer. Perth has definitely found its bottom, but it still has challenges around vacancy rates. Adelaide performing, you know, it's probably a two tier market in Adelaide. We think the area of Adelaide is performing very well. We think some of the beach suburbs are also good value. We come into Hobart, everyone knows Hobart story. I wonder Jane and I haven't said this publicly before. It's the first time I'm sharing this is I wonder whether Hobart is a Gladstone. And I say that with.

You have a follower here, Ben.

You have a follower here with the respective. If everyone knows what happened in Gladstone with the gas projects and just mass shortage of accommodation we know that the people are moving down to Hobart, more retiree type and so less household income. So the jobs that are being created down there are definitely in, you know, aged care, health and those types of things. So some of them reasonably paying, some of them not so. But they've just got a massive shortage at the moment. So it's off the charts in regards to the demand supply ratio. But guess what's going to happen? It's a building boom going down there. Once that building boom comes on, I'm wondering how much we will see come back because it's a very cyclical market down there. We've got to understand population is quite small. Canberra definitely cooling again but that's been very much driven by owner occupiers. That's probably one of the only markets I still believe that Hobart's demand is being very much driven by investors just as much as owner occupiers down there. Even though the Duns, the ABS data that they're sharing with is saying that these are financed by locals. I completely disagree.

It doesn't feel like that though. The people I'm speaking to are buying down there are all investors.

You only need to talk to a dozen agents down there Jane and they're all saying these are interstate buyers and probably mixed in with a couple of owner occupied buyers. So they're chasing the yields down there. So I just think that short term it's been great but we're looking for long term growth, we're long term investors. So that's why we've kept out of that market as much as others have gone in there and they've done well. Congratulations to them. But let's just see how it all beds down after the cycle finishes.

I think Ben, just on that. I grew up in Dubbo on a farm and there was a guy down the road who used to sell llamas and he used to sell llamas to people who heard that you could sell a couple of llamas for 90,000 and all they were selling was to the next people who were buying the next lot of llamas. And there's actually no intrinsic value in the llama itself. I look at these masks, I think it's just like the llama farmer.

Yeah the llama farmer, the ostrich farmers, you know, the trees. All of that all played out pretty poorly, didn't it for those investors? It's speculative.

What About Brisbane.

Yeah, we're definitely up there buying. The whole southeast Queensland pocket for us is a marketplace. You know, we'll buy. We normally buy between say 30 and 50 properties a month for our clients. So you know, when we're definitely in that market, we're definitely buying in that market. So that gives you some confidence. We like houses around the Brisbane locations and we're buying some really strong yielding properties within walking distance to the beach in those boutique little unit blocks that will always have really strong rental yield and really strong tenant demand for those sea changes. And the young people that want to go up there and explore their lives before they get serious about settling down.

The fact, I mean there's been the job growth there that I think is now. Really haven't seen that as yet, have we?

No. And that's why you sort of in those particular markets you still want to be bottom feeding in that lower price point. You know, don't get caught up in buying, you know, the Beautiful top end 25% quartile of properties in that area. We're not seeing that. You know, we've seen people like UE and all that put big call centres into Sunshine coast and all that type of thing. So you know those people on the phones, some of them are commission based. They can earn up to $100,000 a year but it's just not enough yet. We want to see that office infrastructure going into there. We know obviously we've got the training hospital, university training hospital, they're all good signs and the population growth is a good sign longer term. But we would always be playing in that really low entry level price point and getting that drag up value and having what I call compression risk around when the market does soften. Those ones usually don't go backwards. It's usually the brand new stuff and the high end goes backwards. So we get that uplift in terms of them setting the new established bench pricing so we get good growth for the individual properties we're buying without being caught up in the overhype that goes on in those locations.

Now tell me, last year we kind of lumped Darwin and Perth together. Has Perth suddenly started to shine a bit?

Yeah, it's coming off a low bottom. I mean it's, it hasn't even got back to what we call equilibrium. So Jeremy has a fantastic analogy about how our body heats up. We create sweat and it cools us down and then obviously when we're cold you get the goosebumps to try and attract more heat to warm our bodies up. That's what supply and demand is in terms of finding that equilibrium. So at the moment Perth's still got goosebumps, so it's still trying to warm up. It's not even at what we would consider a maybe status. That's not to say there's pockets inside that for that aggressive investor, that really long term player who wants to get into that market and buy in opportunities. But we like to see a little bit more confidence in a market and a broader uplift in the market before we start sending our clients in.

I guess the thing is that for people who are buying in Perth and are looking to buy long term, there's still those pockets of potential. We're still looking about the owner occupied attraction suburbs. We're looking at all those dynamics. If they wanted to get in and potentially have a little bit of downward movement before they move up again, it could be a long term play. But there's probably money could be spent elsewhere. Better to get better growth I definitely think.

I mean the vacancy rate's the big challenge over there. It's definitely on the way down but it got as high as 6%. I mean all of the eastern seaboard people moved over there for the jobs in the mines. The mines are starting to pick up but we're probably still four or five years away from the next mining cycle. So if you've got a long term view and you can see Perth as being a multicultural sort of high culture city and that's going to take a little bit of time, then the people who are buying well in there are usually buying R20 or R40 sites that have a little bit more value in terms of equity harvesting on the land as opposed to just buying a set and forget or a door upper. They're the ones that you'd want to be careful on.

And tell me the Darwin is there hope up there?

I mean you've got to understand Darwin's not a big. You know, some of our regional cities are significantly bigger than the capital of the Northern Territory so yields are great up there. Vacancies are still too soft. So it's going to be one of those cities where timing is everything. And right now we haven't hit the bottom yet for Darwin so there's still a little bit to go there. They've still got the shivers as we'd like to say.

Well, I got to say Ben, I haven't heard anyone talk about a property market in terms of goosebumps before. Usually when I get goosebumps I get pretty excited and now I'm going to be wary. Well look, I really appreciate you being part of our capital growth month. I know that as long term astute investors, it's capital growth that allows you to exit the market, put money in your pocket and retire financially stable. So that's why we put a whole lot of effort into this. And I think the insight that you've bought into some of those dynamics and we share a love of regression analysis and analysis on where to buy. And you know, you guys are out there buying so many properties every single month, you're quite intimate into the market. So it's great to get that insight and I really appreciate you joining us.

Thanks for having me Jane.

Well, we will be talking to you soon. You can check out Bryce and Ben on the property couch and power wealth checkout location score that we had a look at before and we'll let Ben go. Thank you so much Ben.

Thanks Jane. Bye for now.

And guys, if you haven't already joined the club, I urge you to go ahead and join the club. We would love to have you as part of our your property success club. Now as I said, we are really committed to educating our community and assisting, sharing, supporting and celebrating your success. No better place to do it than in the club. And right now what we've done is we've taken up the $97 a month fee and we are allowing you to make a donation as much as you can afford. We'd love you to make a large donation, but as little as $10 will get you into the club. And with that I'm going to give you a gift of 10 online video courses which is really going to assist you in locating those properties. And as Ben said, understanding where to buy is just so fundamentally important. We're really committed to assisting you in doing that. As well as those 10 online modules, you will also get access our private Facebook group, which is full of amazing people, amazing stories, celebrating and sharing exactly what they're doing and supporting you in your property journey. And once a month we also jump in there and we do a Q and A and we answer all your questions. So I'm looking forward to chatting to everyone within the club tomorrow. Click on the link Join the club. Come and get as much information as you need to make your next property choice. So for now I really appreciate you joining us. If you're watching this remotely and maybe enjoying a nice Easter, I hope you have a relaxing time. And to everyone, as always, here is to your property success.