Capital Growth Month! Capital Growth Cities over the last 20 years with Peter Koulizos

Hello, everyone. It's Jane Slacksmith here. And hello to everyone in your Property Success club. It is fabulous to be kicking off March, our capital growth month with our very first expert and one who is a favorite to all of us, and that is property professor Peter Kalizas. Hey, Peter, how are you going?

Very good, thank you. Jane, how are you?

Wonderful. Thank you for being here and joining us. I can see there's a few people that are watching this live. There's going to be a lot of people who will be coming back to this and watching it in their own time. But Pete, capital growth, how important is it to property investing?

Well, that's, in my opinion, that's where the money is made. Like the cash flow helps to pay the bills week to week, month to month, but the real profit is made in the capital growth.

It's extraordinary, isn't it? I know. I mean, you know, we love renovation here to bump up the rent quickly and to get some equity, hopefully to then go and buy another property. But, you know, when we kind of look at our student success over what they've done with the renovation, you know, it's time in the market in good growth areas, that's adding the hundreds and hundreds of thousands of dollars, isn't it?

Right. When your asset is worth hundreds of thousands, thousands of dollars, and you compound the interest at either 5% per annum or 10% per annum, that's a lot of money over a long period of time, which is a lot better than, you know, bragging that you're getting an extra, that you're positively geared by 20 or 30 bucks a week because there's a lot of 20 or $30 a week that you've got to get to make up for 2 or $300,000 in capital growth.

Absolutely. Hundreds of properties. Now, the people who would like to ask questions of the property professor, around capital growth, or indeed around pretty much anything I think he can answer questions on, Please, you know, put your questions in. We'll definitely get to those. But Pete, you've been doing some really interesting research recently on, I guess, past capital growth. Why is it important to look at past capital growth and not future growth? Like what? Why is the importance of history?

Because looking in the the past can help inform the future, especially for property, because property goes in cycles. So theory, if one capital city's had a great 10 years, then maybe the next 10 years won't be as great because it goes in cycles. But then 10 years after that, it might come good again. Now I've just picked 10 as an average because some property cycles go for shorter than that, some go for longer than that. So in practical terms, if you were looking to invest in a capital city for the next 10 years, it probably wouldn't be Sydney because it's had a terrific previous 10 years. Which capital city would you go to is a different story. But at least you can help eliminate those that you may not invest in. And it's not just the capital city because that's the macro point. And then you have to look at the suburb and then the precinct within that suburb because there are some streets better than others.

Absolutely.

As I was saying, I had a couple of classes this morning to my first year students. As I was saying to them, I know you're only first year property students, but one thing you're going to learn very quickly is that location is the most important thing in property because you can change virtually everything else about it. You can fix up the house like you do, you can extend the house, you can even knock down the house so far as the land is concerned. You can subdivide it so you finish up with half or less, or you can buy your neighbour's land. But one thing you will never change is where it is located. So that's why you must get that right. And almost everything else can be fixed up or changed.

And as you know, we're a great believer in getting to the suburb but then getting to that pocket of potential within the suburb. And the first fabulous thing is that we can do that with the data we have today. Maybe the people 10, 20 years ago couldn't, but you know, big data today really gives us that ability.

It does, yeah. And if you live in an area, I mean it's very hard to invest in an area you're not familiar with. But even in your own suburb you probably know the best pockets that you would like to live in and the pockets that you don't want to live in. And the pockets you don't want to live in might be because they're close to the main road or the train line or there's a lot of industry there or, or low quality housing. But the better pockets probably have nicer houses, wider streets, tree lined streets and more expensive houses.

Fabulous. Well, just a few little shout outs to people who have joined us. Hey. Hey Craig, good to see that you've written your name in there. If you've got any questions, please let us know. And Serena, glad to see you here too. Now Pete, what I'm going to show now is the.

What Am I going.

To show, I'm going to show the spreadsheet that you've sent me and we're just here looking at this information. So tell me what this is. It says 2007, 2017.

I did some research over two different 10 year periods, 2002 to 2012, and then move forward five years, 2007 to 2017. So if we start with 2007 to 2017, which is the spreadsheet you have up there now, you will see that the top two performing capital cities are Sydney and Melbourne, which Both did over 100% which in simple maths means they more than doubled in value over the last 10 years. And if the next two cities below that, Canberra and Adelaide. So we have the top four for those 10 years are Sydney, Melbourne, Canberra, Adelaide. Now Jane, shifting to the next spreadsheet.

Sure.

Just for a little while, we can come back to that one.

My husband calls this being the remote remote.

Okay, now you remember the top four was Sydney, Melbourne, Canberra and Adelaide. Look at the bottom four in exactly that same order. Sydney, Melbourne, Canberra and Adelaide, a different 10 year period. Now it's just coincidence that it worked out perfectly that the top four was exactly the same as the bottom four in a ten year period. But the point I'm trying to make here is property goes in cycles. If you're looking to invest for 10 years or less, then it is critical that you pick the right location. From the city to the suburb to the precinct. If you plan to keep the property long term 20 or 30 years, which means it will go through a number of cycles, then timing is not as important. So the point I'm trying to make with the comparison here is consider your goals, consider your time frame which will help inform where you buy and what you buy and many other things. But here we're talking about capital growth and location. So it's really important to see what's happened in the past. If you can try and determine why it's happened. Because it's not just potluck that some capital cities go up in value and some don't go up by as much. Try and determine the underlying factors, what might be happening in the future and then that will help inform for a start which capital city you go to. And then you, and then you go down to the micro level and look at which suburb you go to.

It's interesting because there was something out today that I was reading because I was kind of contemplating this and went well, you know, does this mean we can flip this on the head and go for the next 10 years, we should be buying in Darwin. And as you say, you know, it really comes down to those drivers as well. And just. Julia Bishop is in New York this week signing an agreement with East Timor regarding the oil. Now, previously we had what, a 50, 50 split of profits from the oil around an oil area close to East Timor. Now the line's in the sand that the territory is solely in their shores and not in our shore. But we've got that oil that really generated. I don't know the timing here, but I. I would say that that whole oil distribution to Darwin was really one of those key drivers that we saw in the previous 10 years. Doesn't necessarily mean now that we're going to see that coming forward.

That's right, because they're still in discussions as to where the processing plant will be. Australia wants it offshore, so we still get economic benefit. The Timorese want it on their land, so they get all the benefit. Yeah. So it's a very tricky one. Very tricky one.

But it just goes to show you how important infrastructure plays in all of this as well. Is there other examples that you might have from this list of where you can actually see what has driven some of this growth in these periods?

Well, some of it is just the underlying demand. So it's the population. Yeah. The people that actually live in the city have been waiting around for long enough and they've said, enough's enough, we're going to buy. But there are other factors that impact. Like foreign buyers had a big impact in particular in Sydney and Melbourne. Interstate investors are having a very big impact in Hobart at the moment. So if you wanted to take a big punt and you're only going to buy property for one or two years and hold onto it for one or two years, maybe Hobart is the place to go. Because I really think the Hobart market has more to go. But I think after one or two years, Hobart will go back to many years of growth. I do think, if we jump to the chase, I do think that the best capital city to look for for the next 10 years is Brisbane. Now, unfortunately, I've been saying Brisbane for many years. I know I'm good.

We've got waiting for it for the last three years going. Sydney moved, Melbourne moved. Surely it's Brisbane. Is it all down to wage growth? Because it seems to me now that we're getting job growth there.

Yeah. And the other thing that impacts Brisbane in previous cycles, and I'm sure the same will go for this cycle, is when the Sydney market has Taken off and peaked. People look at, people sit back and look at, right, well, I can sell my house in Sydney, which is now worth say $1.5 million. So we're talking about people in their 50s and up. So it might be worth one and a half to $2 million. I can buy a medium priced house in Brisbane for 5 or 600 and I've got a million or 1.5 million to either retire or at least semi retirement. So I think the discrepancy in price between Sydney and Brisbane is at its greatest at the moment, which is going to help draw many people not just from Sydney, but New South Wales up to Southeast Queensland and Brisbane. It's happened in the past. I can see it happening again. That's why I would. If there was only one capital city that I would pick, it would be Brisbane. But you know, Brisbane has hundreds of suburbs. Your next step is, all right, which suburb am I going to look at?

Yeah, and just picking up on that. I mean one of the things that we're always looking for is that pricing disparity within cities as well. And you look at the median house price around Melbourne, around 750 and 1.1 in Sydney. Arguably there is for a long term investment Melbourne, with the population growth and you know, the major industries and finance sectors etc. That are here. Could you apply that kind of same mentality to where in actual fact you could buy a very similar quality home in Brisbane and successfully risk minimize your potential income streams by being in a economy that, that has the longevity to actually buy in Melbourne and have potentially better growth?

Yeah, yeah, that's right. So the principles can be used in a number of different situations. The other Brisbane to older people is that it's warmer and from the southern states like Victoria, South Australia, you know, that is a great incentive. Having said that, South Australian housing is cheaper than Brisbane. So they're not going to go up there because there's a price discrepancy from Melbourne. There is a great attraction. And I remember there was a huge exodus from Victoria back in the late 80s, early 90s. I mean Victoria, like South Australia also had the recession. Our financial institutions collapsed. You had the Pyramid building society collapse, we had our bank of South Australia collapse. So there was a number of factors that influenced that immigration push. But I think going back to what I said earlier, especially from Sydney, you are going to see many people move from Sydney and New South Wales up to Queensland. And historically Sydney population grows not because lots of people move from other states into New South Wales. It's because they move from other countries into New South Wales. Sydney actually is the negative when it comes to interstate migration. Where it's a big positive is overseas migration. Because you ask most people around the world to name one city in Australia and it would be Sydney. So shift to another country, you're going to go to where you're familiar with and you're going to go to Sydney. Plus, Sydney and Melbourne are the two places where you've got the best chance of getting in particular white collar professional jobs. Most people will move for a job. So there's a number of factors and.

It'S interesting because when you're talking about Hobart, because I know a lot of experts and we're seeing a lot of growth in Hobart and geez, you know, the yield's great and it just looks cheap. But you know, I heard last week there was like 20. Now I'm going to try to qualify this, but 24,000 Airbnb properties that are listed in Hobart. I didn't know there was that many properties in Hobart, to be honest. But you know, the same amount of properties that are up for auction or up for sale in Sydney at the moment. So I wonder how much of that short term thinking and opportunity is coming from investors. And you know, I know that the ABS is saying that the numbers are, that the people who are buying there are locals as well, but I just wonder how many people are going to be able to rent these places.

Look, we saw something very similar to this back in 2002, 2003, where Hobart had a price increase of almost 60% in one year. Now they're not going to have 60% again this year. I mean, they had double digit growth last year and I'm sure they're going to have double digit growth this year. But there are a number of factors impacting on Hobart prices at the minute. Mainlanders wanting to buy there, whether it's maybe mainly Melbourne people wanting to retire or semi retirement investors because it's affordable. And we had something very similar in Adelaide and South Australia for the previous couple of years because for Sydneysiders and people that live in Melbourne, it's very hard to buy an investment property when the median house price is 700,000 or a million. You can buy a house in a reasonable area for 400 or 500,000. So a lot of it just comes down to affordability and where you can afford to buy.

Yeah, it's interesting. I was looking at, you know, how you look at the back of your investment property magazine and look at the growth that your portfolio has done. And I was, I had heard someone say, you know, they had something like a 10% per annum on the last 10 year growth in their portfolio. And I wondered, did that mean they had some 25, 27% or 20% and some 2%. And I looked through my portfolio and my portfolio had grown between 10 and 12%, so an average of 11% over the last 10 years. I mean, you know, Rule of 72 really telling us that you're making doubling your money every six years. And that's what targeted capital growth can do.

That's right. If you pick the right city, pick the right suburb, pick the right precinct, and importantly, pick the right property. Yeah, very well. I'm actually doing a lesson next tomorrow night on looking at old versus new property.

Nice.

You know, suburbs that have recently been developed. So in a Victorian example would be say Caroline Springs.

Yeah.

And you could buy, you know, with a certain amount of money you could buy a relatively new house in Caroline Springs. Or with the same amount of money you could buy an old house inside the gentrifying in a west of Melbourne.

Yeah.

And it's interesting that when I compare old suburbs with new suburbs and then look at old houses versus new houses, you know, the same, you come up with the same conclusion. And that is even though older houses are more hassle, take more time to look after, they have a higher vacancy rate, they have more capital growth.

Easy to renovate too.

Yeah, that's right.

And add value too.

Us southerners, we love our period style homes, don't we? Don't bother trying to renovate a 70s or 80s home. But if you can renovate a home that was, that's 100 years old, that's.

Where you want to make it. Well, it's interesting, I was in a body corporate meeting for one of the units I own in Sydney in the eastern suburbs on Monday night. And it was built in the 60s and you know, red brick, boring eastern suburbs, Sydney. And they were talking about putting some glass balconies on the front and I was like, no, this is period. Guys. Think of Airbnb. You can put this out as a 60s kind of unit, like don't wreck it the period. This is going to be, you know, national trust in a few years time.

And they're like the vogue, Believe me, it's funny.

Well, just on Carolina Springs, it's interesting. I, you know, in my previous life used to be an explosives engineer and they were out there jack hammering that basalt for months at a time and I went out with a solution to kind of blast it all very quickly and easily and almost got it over the line but they got a cold feet at the end. It would have been a two week solution, not a 20 month jackhammering solution. So I'm familiar with that area.

Now.

Pete, let's talk back to you. I'm going to put you in the hot seat now. You wrote a book and you made some predictions about growth in a book. So I'm going to hold you accountable and show this up and you can tell me exactly what you have, what your predictions were way back then and exactly what's happening.

So I'm just testing some of my predictions. I'm going to do a full assessment later this year because I'm waiting for the March data to come out from the ABS because I exactly 10 years from the time I wrote the book. But even if you scroll down a bit, Jane, you'll see that there's lots of green squares, which means those suburbs performed better than the average for that capital city. They're the, you know, the top 10 performers in the capital city. But if you invested in those suburbs then you would have done better than that particular capital city. But I'd like to make a few points. If you go back up, you see the red, I do further testing. There's going to be more red in Perth. What happened in Perth and what I didn't see coming was the GFC and the global financial crisis had a huge impact on Perth because it was so dependent on mining. And the other thing is a number of my Perth suburbs were on the coast which is a lifestyle decision for people. Whereas a lot of suburbs that I picked in the other capital cities were closer to the city, which is more a decision people make when they are working. So I mean, I hope to clarify that more in the second half of the year when I have more data. But Perth is going to stuff up my results. But the other thing I want to point out, Jane, and how important it is to get not just the right city but the right suburb. You see some of those suburbs in Sydney and they've done 180% when Sydney did 105. Right. And Melbourne is also quite good. But if you go down to the best performer, say for Perth, it's a long way away from what Sydney did. Even though you may have picked the best suburbs in Perth to invest in, you made a big mistake because your first step should have been to pick the city first because you know, some of the worst performers in Sydney may have Done better than some of the better performers in Perth.

Yep.

So again, research, macro point of view, micro point of view, and then drilling down to the precinct and if you scroll up a little bit to the Melbourne suburb of Brunswick. Jane.

Yep.

Right. So Brunswick was one of the top performers. So that did.

150%.

150% in the last 10 years. Thank you, Jay. Which is much better than the Melbourne average. But in my book, I said if you're going to buy Brunswick, you've got to avoid buying property on Sydney Road and near the train line because those properties in that particular precinct did far worse than the average property in Brunswick. So you could have bought a property on or near Sydney Road or in between Sydney Road and the train line and your capital growth would have been nowhere near what the majority suburb had done.

Yep.

So John, having said that, in theory, the remainder of Brunswick would have done better than 150something% because it's being dragged down by that. That section.

Yeah, that component. It's amazing the, you know, that funnel when we look at. Choose the city first with the, with the growth potential to suit your time frame, then choose the suburbs that have the expectation to be able to out deliver or outperform the capital growth. The city then get down to the pockets of potential and we know how to do that, you know, with the streets that are better aligned and more suited to renters or where the renters want to live, but away enough of a distance away from those busy areas but closer enough to infrastructure and then the typical property on the typical size block. You know, it's not rocket science, but you know, the fact that we can be laser focused to do that really almost guarantees people some degree of success that will outperform the market, which this data shows.

And for those people watching this video, there will be many experts that'll have different methodology. But you know, for example, there are a few of us that will say a particular suburb's going to do well, but we've all come up with different methodology to pick that one suburb. So maybe one of us is wrong, but surely all of us can't be wrong. For example, you have different methodology to pick your top suburbs to what I do. But interestingly, in the end they're very similar because I look at quantitative information like you do, and I look at things like where is there an increasing number of professional females moving into a suburb, where there is a decreasing number of kids moving into a suburb and then I look at qualitative factors as well. So I go down the main shopping strip and do I see vegan shops and organic shops and other bikes outside the cafe? Road bikes that are worth $5,000 and there's middle aged men in lycra riding them or are they, they designer bikes with people in their late 20s and, and early 30s riding them? Yeah, and other, the fellas on their road bikes drinking, you know, their lattes or is it the hipsters drinking their, what is it, quinoa and spinach.

With a twist of lemon and ginger?

These are some of the qualitative factors that I like to do when I'm researching. Because one thing that I'll do when I'm researching is not just check out the abs or other data, is I physically go there and check out the streetscape, the houses, the people that live in there. Because properties, people and place can help determine capital growth potential.

And I think just getting that final validation of what the suburbs like can, can really assist in allowing you to have that final, you know, 90% of the data as far as I'm concerned. You can get organically or over the Internet, but it's that final kind of 10% where you walking the streets, you're getting the feel, the vibe, you're getting that, you know, just things that may not even come up, like high tension lines, you know, power lines or. Oh, you know, and just seeing the type of magazines in the news agency which an idea demographic of the area and I think it's just, it's almost like it's that final little percentage which, you know, can add a bit of value, but get into the 90%. You know, I think as you and I agree, we keep coming up with the same suburbs and I know that my husband and I, you know, 2004, five, we were looking at Arncliffe and to us it just completely made sense, you know, but to be honest, we walked around that suburb and there were streets in that suburb. We felt really uncomfortable. And I thought if I was a single female coming home on the train, 7 o' clock at night, would I walk down these streets? And in the end, all the numbers stacked up. But I personally felt I didn't want to have tenants that were exposed to a potential risk that I wouldn't be prepared to take on myself. But the suburb, the numbers prove the point.

Yeah, so, but I mean all of that is very valuable because as you're alluding to, in the end people have to live in those areas. So you do have to double check not just with what's on paper, but go out and see what's happening in rural life too.

Well, Pete, as always, it's been amazing talking to you. I'll see if we've got any questions here. We've got a few people watching. No burning questions are coming through, which means that we've probably answered everything. Capital Growth Month, easy. Done. But I know that now tell me, have you got another book coming out at all?

Yes.

Well, Hugh, tell me first.

Well, I wasn't supposed to say anything, but my co writer has already said that we're writing another book. I'm writing on property development. We are writing a book on property development. So she is diarizing what is happening with her property development or proposed to happen with her property development. And then I provide expert tips on what she did well, what she could have done better. And then providing tips for the average mum and dad developer as to how they can go about property development.

Now, Pete, you're an experienced property developer yourself. How many of you done can you remember?

Yeah, 15.

So we're getting tips from someone who's been there and done it as well. And when are we expecting the book?

When the development's finished. It won't be this year because the development has to be finished and then the book has to be published.

Okay. And we know how long that takes. It took me a year to write my book.

My guys, it took me. I remember my very. That book that we're just talking about. I remember from the day I signed the contract to the day I submitted my final draft. One year and one day does take a long time.

We can talk books. They took a year to convince me to write it and I then took a year to write it. I was up at I think 5:30 writing to 6:30 most mornings and finally got through it. And I went, I went to submit it on the day I was supposed to submit, it was the following day. And I went through and checked the contract and I'd actually written single spacing, not double spacing. So I'd written two books and then I had 24 hours to take half of the content out. I probably got another book out there somewhere in me. But it's amazing when you write a book and having been authors ourselves, how much incredible intellectual property and information you put into that book, that if someone, and I know you probably get the same feedback, people have picked up the book and said, I've made hundreds of thousands out of what I've read in a $30 book. It's just extraordinary in the amount of information that's available.

It is, but there's a lot of. How do I say it nicely? There's a lot of garbage out there, too.

There is a lot of garbage.

You know, what's that term sort? The wheat from the shaft.

Well, Pete, I've got to say, it's been so nice speaking to you again. And as always, we will be keeping in touch. And when something interesting happens out there, we'd love to have you back on to have a chat.

Excellent. Can I make a suggestion, Jane?

Yeah.

Second half of the year, when I've done all. When I've checked all of the suburbs.

Yes.

I'm going to do a series of seminars called the Property professor or the Property Pretender, because I don't know what the answer is yet. But if you like, we can do something similar and we can have a look at all the suburbs.

We'll keep you accountable.

Yeah, that's right. Because a lot of people do predictions. I know people to go back and check those predictions.

Yeah, exactly. Well, no, we will keep you accountable. It looks like it's all green so far. Only a few red suburbs, so I doubt that we're going to see much change. Now, for anyone who's watching this, we want to know what challenges you're facing. We want to come up with new content and information for you. We do have a very quick survey that we're running with just three questions about what your single challenge is when you're looking to buy a property. Maybe it's growth and where to buy, or maybe it's something completely different. I'm really keen to hear from you. I'm going to put a link down in the comments later. Please go and take a few minutes and have a look at that. But as always, thank you so much. And Peter, thank you for being such an amazing guest and sharing your latest research with us.

Pleasure. Thank you, Jane.

Okay, all the best. Bye. Bye.

Bye.