Smart investors diversify across Australia's many different property markets: Terry Ryder
I met a bloke at the Brisbane Home Buyer and Property Investor Show who once owned 30 units and 16 houses in Greenvale, which at the time was a boom mining town.
Greenvale, 220km north-west of Townsville, had a nickel mine with ore carried by train to a processing plant at Yabulu between 1994 and 1993. When the mine closed down and the rail tracks were removed, the town’s population dropped from a peak of 3,000 to around 150.
The chap at the Home Show was fairly philosophical at having to sell off his 46 Greenvale properties at tiny prices.
But I wonder why an investor would buy so many properties in one location, particularly a location so dependent on one business.
It’s surprisingly common for investors to try to corner the market in a single town by buying multiple properties. One investor bought dozens of houses in Moranbah, the coal mining town in central Queensland, a market where rentals have since halved and prices are falling because downsizing by major miners has left the town littered with empty rental properties.
I often meet people who own multiple investment properties, but all in the same city or town. This “all your eggs in one basket” approach is dangerous.
Having a geographical spread makes sense for many reasons.
One of the fundamentals I try to make clear whenever I speak to audiences, including at the Brisbane Home Show last weekend, is that there is no such creature as “the Australian property market”. There are many thousands of markets, moving in various directions and at various speeds, because local circumstances are often more influential than the underlying national factors.
Last year many markets recorded double-double price rises, while others rose more moderately, some fell a little, and a few fell a lot. It’s like that in most years. The last time there was a property boom that encompassed pretty much the whole nation was in 2003/2004.
If an investor owns six properties in Hobart, they’ll be hurting right now because that city is the capital of the recession state and remains mired in a downturn.
On the other hand, an investor with six properties – one each in Hobart, Sydney, Melbourne, Darwin, Perth and Brisbane – will be feeling a lot happier with the world, because most of those cities have rising markets, including two or three with very strong upturns under way. The well-performing properties will more than counter-balance the one that’s struggling in Hobart.
Plenty of investors piled into the Gladstone market in the past 2-3 years and bought multiple properties. Others have done the same with Mackay. Both markets are declining, as vacancies rise on the back of over-building by over-keen developers.
Both cities have big futures but in the short-term investors with multiple properties are having to drop their asking rents – by as much as $150 a week – to secure tenants.
Far better to have bought one property in Gladstone and made investments in other parts of the country. There’s no shortage of growth markets across the nation.
Another good reason to diversify geographically is the impact of land tax. Anyone who buys multiple properties in one state or territory will quickly find themselves forking out thousands in land tax every year.
Terry Ryder is the founder of hotspotting.com.au