Good day, my name is Ben Everingham and I’m the Director here at Pumped on Property, and in today’s video I’m going to do a bit of an analysis on the Australian property market over the last 50 years.
Good day, my name is Ben Everingham and I’m the Director here at Pumped on Property, and in today’s video I’m going to do a bit of an analysis of the Australian property market over the last 46 years. I know I said 50 years in the title, but I could only get access to 46 years worth of data.
This video has come off the back of a webinar that I ran a couple of weeks back titled, ‘What I’ve learnt from buying 100 million dollars worth of property for my clients over the last couple of years.’ I did a huge amount of research for that webinar and I found this amazing source of data from homely.com.au, which it basically looked at the Sydney, the Melbourne, the Brisbane and the Perth markets on a year by year basis in terms of what their capital growth rates were, from 1970 all the way through to 2016. So incredible data and it just gave me a completely different perspective on the Australian property market.
I’m more excited about the Australian property market after reading that information and interpreting it than I’ve ever been in my life. I’m very, very excited for the future, for all of those of us that are in investment properties, or that plan to own them. So the first thing I want to talk about was how just blown away by the data I actually was. Like I literally had no idea that property prices in Australia had done so well, for such a long period of time. Obviously there was flat periods, there was periods where it had lost money, but the long term trends were exceptional. So that’s where I’ll start today’s video.
I wanted to talk about Sydney, so in the last 10 years, Sydney has done 7.9 percent per annum compounded, which when you add the compounding effect is really a property doubling in value over that last 10 year period. People have always said that property doesn’t double in value anymore in Australia, and I 100 percent agree, and I don’t think you can use that type of data to predict the future. Unless wages start to increase again, or they let a huge amount of people come through into Australia, in terms of first generation immigrants. But Sydney’s grown by 7.9 percent in the last 10 years on average. So again flat years, backwards years, good years, it’s just that longer term trend that I’m interested in.
Over the last 20 years Sydney’s actually gone up by 8.55 percent per annum. Sorry 8.85 percent per annum, which is incredible as well, and over the last 46 years when you average out all of the data, it’s actually gone up by 9.67 percent. So just under 10 percent compounded for the last 40 years, makes me kind of go, I wish I was 46 years ago starting to think about this stuff. Before I was born, I wish I could have been in my dad’s ear, or my grandpa’s ear going, buy and hold really good quality assets in Sydney, in Melbourne, in Brisbane.
So if you look at the Melbourne data it’s quite similar actually to Sydney’s performance, I was surprised. It’s gone up by 7.9 percent as well in the last 10 years. It’s gone up by 8.7 percent over the last 20 years, which is just a little bit lower than Sydney’s longer term performance. Over the last 46 years it’s actually performed a bit stronger than Sydney at 9.68 percent per annum. So again, very, very strong, very solid growth.
The Brisbane marketplace was where I was most blown away, so everyone knows that Brisbane’s had a shocking 10 years between 2006 and 20 … Not so much 2006 but more 2008 and 2017, it’s almost had nine flat years now, which I’m also very excited about as an investor. But in the last 10 years it’s done 4.92 percent compounded per annum. If you look at the 20 years worth of data, it’s done 8.7 percent per annum, which is inline with Melbourne and just a bit below Sydney. But what blew me away is that over the last 46 years Brisbane was actually the top performer out of any major metro market in Australia. So it’s done 9.7 percent per annum, which is higher than Sydney and Melbourne.
So one of the reasons I was blown away and shocked by this data is some of the preconceptions that we all have as investors is, Sydney’s better, then Melbourne’s okay, and then Brisbane’s you know you’re next best option after both of those markets, just isn’t true. So that’s what I wanted to talk through now, some of the observations from the data. Again this is my personal interpretation, I’m not a data analyst. I’m not sure how reliable the data that Homely produced was, and I’m sure there’s some statistical error in there, but again, these are just my observations based on reviewing that data. I did compare the data for the last 15 years against RP data, and it was very accurate against that, which is good. Because RT data, RP data is the largest collector of this type of info in Australia.
So some of the observations were growth 100 percent comes in waves, especially in Sydney and Melbourne. So in Sydney and Melbourne growth has consistently for the last 46 years come in waves. I suppose we’ve just come out the back of one of those waves in Sydney, where between 2011 or 12 to 2016 prices went up double digits every year, during that period in terms of house price growth. So what generally I saw from observing the data is there’s blocks of periods where there’s high growth, and then there’s periods where the growth is negative, the growth is stable, or the growth is lower. Again these are just very general comments and observations, obviously year by year, city by city there’s differences.
What I also noticed is that Brisbane has very sharp spikes, it’s actually had the strongest performance in terms of yearly, like year on year growth, or year growth, over the 46 year period. So Brisbane’s had a couple of periods where it’s just gone literally batty over a 12 month or 3 year period, and really, really shot up. Brisbane seems to have these longer flat periods and then sharper spikes in growth. So Brisbane right now has been sitting flat for the last nine years, before that it had a little bit of growth and obviously a really strong period of growth 17, 18 years ago from today. But that was interesting to me.
Brisbane has had a period before it sat flat, by “flat” again it’s consistently performed by not breaking any records for an 11 year period. So that was also an interesting observation that I saw in Sydney, Melbourne, Brisbane and Perth, they all had these periods of time where they could sit flat for long periods of time. They could go backwards for periods of time, which again is a misconception in the Australian property market. Something that all investors have to embrace and understand, and expect in the future.
One observation that blew my mind, like this is the craziest thing that I saw in the data, is that 80 percent of the time in Sydney, Melbourne, Brisbane and Perth at least 80 percent of the time, maybe even 85 to 90 percent of the time based on the data I observed. Was that growth when one of those markets Sydney, Melbourne, Brisbane or Perth grew by 10 percent per year, 80 percent of the time it was followed by at least another one to four years of double digit growth. This just blew my mind because I’ve always been as an investor and as a buyers’ agent, looking for indicators in a market to show there’s a meaningful reason to get into the market. One of these indicators that nobody I’ve ever seen has talked about before, is this correlation between double digit growth in a market place and consistent really strong growth in Sydney, Melbourne, Brisbane, Perth after that 10 year thing.
So again, you don’t want to miss out on the 10 year growth, but if you’re extremely conservative and you know that there’s not based on Phil Anderson’s stuff a major recession coming. Or we’re not in that 15 to 18 years cycle of the major recession that comes around, and you’ve got a good period of time leading up to that. Getting 10 percent growth in one year is an extremely early indicator of something that’s going to occur, and I suppose it’s just the case that as humans we’ve got this herd or sheep mentality. Where we follow growth and we jump on the bandwagon and so it literally blew my mind, I just want to swear right now, like how crazy it was and how consistent it was. Where when one marketplace got 10 percent growth, the next 12 months or three or four years after that, how many double digit growth years there was, and how consistently that has occurred in Australia.
So that’s definitely an indicator I’ll be keeping my finger on moving forward into the future. One that is worth keeping an eye on and I’ll continue to track that over the next 40 years as an investor as well.
The last thing I wanted to touch on in terms of my observations is the market completely did significantly better than I expected it to. Like coming into this I have been very, very, very conservative when looking at the future, when I model my own numbers I just do four percent compounded growth per annum. I know that property prices relative to wages are probably more expensive or as expensive as they have been before in Sydney and Melbourne. But in Brisbane I’m very, very interested to purchase some more property and to wait and see what happens between now, which is 2017 and the next seven years. Because I just can’t see how that marketplace, with the population, infrastructure and job growth that’s occurring now, can sit completely flat for the nine years that it has, plus another seven, plus the next recession that we’re going to.
So you’re looking at a period of 15 to 20 years of complete flatness, and you know it could happen, there’s economies around the world where it has happened. Japan, they get almost no growth, in Germany over there like speculating in investing property just isn’t in the DNA in some of those European countries. But there’s very strong population predicted for Australia, the net immigration rates in Australia as long as they continue to be around that 1.5 to two percent mark per annum, it means there’s going to be a lot of people coming in and generally there’ll be an oversupply of properties sometimes and then an under supply. But it’s fascinating to look at this data and as someone who’s obsessed with data it really sort of took my breath away, just how strong the performance was.
It makes me excited about the future as an investor, in terms of how I can make this data useful for me. My strategy in the last seven years has been buy and hold some quality stuff, and flip a lot of properties. But now I look back, buying and holding these things for a 10, 15, 20 year period, particularly if you buy at the right time, like after you see that first 10 percent growth. Or the year before that when it’s starting to rise, is just really fascinating for me and something that I’m definitely going to apply. I’m going to change my approach a little bit and make sure I buy and hold those really high quality assets in the CBD or on the water. With unique characteristics for the future, so that I can maximise the potential in my long term position.
What I wanted to do now is have a quick look at the results from the past if you had to put X amount of money into X market, and held it for a certain period of time. I also want to show you some examples of what could happen in the future if you very, very conservatively get results that we just haven’t seen in Australia at any point in the last 46 years. So in terms of looking back at the past, if you had to bought a property for 40,000 dollars in Sydney, 46 years ago from today, and that would have been a bloody nice property. Like that probably would have been waterfront in Vaucluse or something like that, it would have been a really nice place. That property consistently grew over the last 46 years in line with just the averages, not better than the averages at 9.67 percent per annum. Then that 40,000 dollars that you invested 46 years ago would now be worth 2.8 million dollars in today’s value. That’s just crazy, like that is so exciting to think about what if you had to have bought two or three of those. You’d be financially stable and set up right now.
You know you could have also maybe bought a property that you added 30 or 40, or 50 percent growth to over that 50, 46 year period as well. So that’s really exciting. I then did an example looking back at the past of, well what if you bought a property worth 200k 20 years ago in Melbourne? Which again would have been a beautiful property, like a real owner occupied suburb, probably on the water, probably with a huge land component or some development potential. 200k and it grew by what Melbourne did in the last 20 years, which was 8.7 percent. You’d now have that 200k would have turned into one million and over 60,000 dollars.
So again just crazy to see the power, like it’s extremely difficult over a 20 year period if you’re an average income earner to save 800,000 dollars. If that was your own principle place of residence, then you could sell that tax free. Or if you held it till retirement there’d be tax advantages of selling it at that time. So it’s really interesting just to see the effect of buying and holding in that compound growth over time.
The last example is really looking forward into the future, because I’m very much focused, now that I’ve seen this data, on where I could potentially end up. I’ve been really conservative here, I’ve just had a house in Brisbane bought today, and held for the next 20 years. For that property to be purchased for 500k and for that property to grow by five percent per annum compounded, 20 years from today that 500k property would be worth 1.3 million dollars or a bit over, which has made me 800 grand over the next 20 years that I don’t have to work for now. The way that I think about this, is if I buy a property worth 500 grand, and it makes me 800 thousand dollars on top of that over the next 20 years. Then if I was to buy let’s say four of those properties now, and I’ve made myself 800k times four, so 2.4 million dollars type thing. I’m just doing my maths on that, eight, 16, 24, 32.
So the last example I wanted to talk about was really the Brisbane marketplace and really projecting into the future, or thinking about the future. So in this example for the next 20 years I’m looking at buying a 500 thousand dollar house, that grows by just five percent per annum, and again I think that’s being pretty conservative based on the history of what’s happened in Australia. That’s five percent per annum compounded from today, which is 2017, 20 years into the future. You’d end up with that property being worth, just with that five percent growth per annum, 1.3 million dollars, or a bit over 1.3. Which means you put 800k in your pocket that you haven’t had to work for over the next 20 years.
What gets me excited about this is if I was to do that four times in the next four years and hold all of those properties for 20 years, I’d be in a position where I’d made 3.2 million dollars without saving any money or going to work. I’d be in a position where even if I did 80 percent loans, four times 400k, ’cause it’s a 500 grand purchase minus your 20 percent deposit. So you know I’m at 1.6 million dollars worth of debt, with very, very close to six million dollars worth of property value. I could sell a couple of those properties or I could sell one of those properties and I could pay off the debt outright on another one of those properties. Hopefully over the next 20 years you pay principle in interest as well. Your debts been eaten away over that period of time.
But what’s really exciting about that is the fact that anybody could go out there and buy those types of properties, if they’ve got a good savings plan. If they’re earning decent income, and that they’re prepared to do the education and learning. Even if it takes you 10 years to buy those properties and then you hold them all for a further 20 years after that. It’s so exciting to see how achievable buying good stuff today and selling a bit of it in the future to pay off other properties outright. To really set up your retirement and to set yourself up for financial independence.
So this data was just insane, the major outcome that I had from all of these things that I’ve learnt is well you’ve got to be buying and holding really high quality stuff in good markets. For me personally it’s only ever going to be Sydney, Melbourne, Brisbane and maybe Perth in the future, maybe not. I’m going to be holding this stuff for the long term and I’m going to be buying things that I know I can add some value to over a 20 year period. I’m just going to focus on making sure that I get those above average returns on those above average properties in those above average suburbs.
Really just set in for the longer term, put myself in a comfortable position, make sure I don’t over expose myself in those times when the market does change. Because looking at the 46 years worth of data there were times where property prices did drop, 1920 30 percent, for a period of time. Then obviously rebounded back up, but you know as investors we’re so short term focused and I think taking a step back, looking at the longer term averages and really setting yourself up for success long term is very, very exciting. So I can’t wait to share this data with more people, with more of my clients. Help our clients create those 10, 15, 20 year strategies, and make sure that they know that the compound effect of that growth over time is going to be what it’s going to be.
So I’m more excited about the Australian property market after doing this video and researching for that webinar and looking at this data, than I’ve ever been before. I can’t wait to get back into the market. For any of you that are interested in potentially talking further about the Australian property market. I’d love to offer you a one on one strategy session where we can talk about where you are right now, where you’d like to be 10, 15, 20 years from today. What’s holding you back and actually create an action plan around what the right next property might look like for you. So that’s a complimentary session, you can jump over to my website, www.pumpedonproperty.com and take a look.
Until next time, thank you so much for your time today, and I hope you got some info out of today’s session. I hope it wasn’t too data geeky, Ben style for you. Thank you very much.