Warning to property investors: you’re trapped in a bubble
In this article for Professional Planner, Roger discusses the key ingredients of a property bubble. Read here.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Victor Dislakis
:
Roger, given the rise of airbnb in recent years, is it fair to say that property investors (particularly those with inner city apartments) now have alternative ways of generating revenue from their properties? I had a horrid time recently trying to book a hotel room in Melbourne, so I am wondering whether there is a hidden demand we may not be accounting for. On the flip side, it also appears that many commercial buildings/office spaces are also being turned into apartments. Is there a hidden supply side we are not aware of also? Are either of these significant in your opinion?
Roger Montgomery
:
Yes but there will be many apartments vacant. In Brisbane for example, where more than 5200 new apartments have been constructed in the first nine months of 2016, renters are moving from older suburban flats into the new apartments. As a result, vacancies in Brisbane’s ‘middle’ suburbs – those between 5 and 15 kilometers from the city – jumped to 4.5 per cent, from 2.3 per cent in the last quarter, while unoccupied units within 5km of the city center rose from 3.4 per cent to 3.7 per cent.
Vacancies put land lords who have borrowed to invest under financial ‘stress’.
And lest you think the vacancies will ease, another 13,000 apartments will be completed in inner-city Brisbane over the next 18 months and 16,000 in Melbourne’s inner suburbs in two years.
The impact on returns to investors will be inescapable.
Tim
:
What effect, if any, do you see this having on detached house prices?
Roger Montgomery
:
HI Tim, That’s a frequently asked question. It depends on the extent to which buyers of houses are happy to switch to apartments. There will be a proportion that are happy to switch and that will leave fewer buyers for the house and so detached houses aren’t immune. Drop pebble in the middle of a pond and eventually the ripples impact the entire pond.