How I’d invest $1 million

So we’ll expect to see more of those being built?

That’s where the really savvy developers are focussing their attention. There’s a lot of very good quality, smaller number, boutique scale developments coming on and they’ll meet with very strong demand. People don’t live in houses anymore, they can’t afford them. They’re living in townhouses, they’re not fully embracing apartments yet. A lot of tenants are but owner/occupiers are saying okay I can’t afford a house but I’m not going to buy a bloody flat, I’ll buy a townhouse.

And what’s happening to houses then?

Well houses are supported by a market of people who are in the upper socio-economic profile these days, whether it’s due to income or capital. A good house in the inner suburbs these days costs you $800,000 to $900,000, if not $1 million. But in the same suburbs where houses cost you $1 million, you can buy townhouses for probably 50-60% of that value.

On housing prices?

The house values do tend to correlate to the economies broadly speaking and I would think that there are still some economic issues in South East Queensland around Brisbane and I think Perth will actually get through it because there is a rebound in the mineral markets over there.

I would say it’s still potentially soft in the highly concentrated areas of South East Queensland. I would say that Adelaide and Tasmania are neutral and balanced, I would say that Perth looks like it might be underpinned. Melbourne is starting to rebound and that’s in the statistics and I would say Sydney would be lucky just to hold its own in the next 12 months.

Will the Government make changes to negative gearing?

If you look at the media and if you look at the reports, there has been discussion on a number of occasions about negative gearing and where it’s all going. And I would say there is enough public debate about negative gearing to raise the question of whether or not its status is going to be adjusted that you would have to ask the question, are there some short-term changes about to brought in?

Well, they’ve already started with holiday homes…

Well if they’re going to do it, they’re going to cut deeper than that.

What’s happening with coastal property? A lot of our readers have coastal homes.

That’s a bit soft: I mean you wouldn’t be selling a coastal home at the moment unless you had to.

Shares or property?

A lot of people are saying to themselves at the moment they’re torn between the equities market and the housing market or the real estate market.

Let me say this, over a long period of time, usually over any 10 to 15 year period, the equities market performs very similarly to the real estate market. In other words your total returns, whether it’s income or capital growth are basically the same from both. So if that’s the case, the question can be asked what difference does it make as to which one you would invest in?

The answer to that is that over the longer term, they might perform similarly but along the way, they perform very differently. And if you look at the current market, equities have been slashed, they’ve gone down by 50% on the share market but real estate hasn’t. Now why is that? And the reason is this: there was much more debt in the equity market than there was in the real estate market.

But you buy shares in some company, you don’t know how much debt the board has taken on board but you buy a little flat somewhere, the debt is under your control. So without getting into the complications, it is a fact that although these two investment classes perform similarly over a long period of time, they behave very differently along the way.

So from that, you might then say you’re safer in property?

No, you’re safe to understand the reason for balancing your investments in a variety of places but you should never be without real estate.

It’s a very good point. What about your industrial, retail?

Well, the commercial markets are being knocked around more in this economic downturn more than the residential markets. Of all real estate, the residential markets have been much more resilient. Now when you move away from residential and you look at the three broad categories of the non-residential markets which are commercial, retail and industrial, probably the market that has suffered the most is industrial vacant land. And at the other end of the scale the non-residential property that’s performed the best is anything in those three categories that has a really long lease.

And what about moving forward? What would you do there if you had $10 million?

Well for $10 million, I’d be looking to buy anything that’s got a 15 year lease to a Triple A tenant because it’s a blue chip guarantee, so it’s like buying a bond.
So it’s either a supermarket or Bunnings or a petrol station. Anything that’s got a long-term lease.

Now Scotty, you were probably the first I know of who really warned people about the property trust. What should you be looking at investment wise now?

Well, my caution about the property trust was always for the reason that I think that if you’re going to be in property, you should do it directly rather than leave it to a manager.

The managers take too much of the profit and are often too avant-garde with their gearing strategies. And that’s what’s brought all of these trusts undone. So don’t get involved in property unless you can do it directly. That’s my big push. This would upset the trusts but I don’t mind being called controversial.

So you’re at $30 million revenue now, what’s your plan going forward?

Just to stick to our knitting. We’ve built a great business, my employees and my partners are all very happy with the business. So far as I’m aware our clients are very happy with the services that we’re providing and we’re just very thankful and satisfied that our business is professional and broad based.