CFMG Capital General Manager Andrew Thomson attended the SMSF Trustee Event in Sydney recently hosted by SMSF Trustee News where Andrew was also a guest speaker delivering an insightful presentation on the recent property boom driven by low rates and government stimulus. Andrew was able to give a front line account of how the market was performing pre-pandemic, their forecasts prior to COVID 19 and what the market looks like going forward in a post pandemic world with rising rates, inflation and removal of Government stimulus.
“Prior to COVID 19, the typical negative commentary were predicting the residential property bubble to burst, then when the world largely went into lockdown in March 2020 those same commentators predicting a 30 per cent price correction. They were only wrong by 50%, but now that we are seeing minor corrections in some markets, they’re on the soapbox again, but right now for the first time, they at least have some negative growth in some markets to support their position, but we won’t be seeing a 30% correction” CFMG Capital general manager Andrew Thomson told delegates at the SMSF Trustee Empowerment Day 2022 held in Sydney last week.
“[However], the market is not going to be a bust, its simply cooling off after a record growth period, we won’t see dramatic dives in value, but any kind of price growth in the property market, certainly in new developments, is going to be milestone driven.”
For CFMG Capital, these types of milestones include events such as demolition and construction commencement, roads and other infrastructure, construction completion and registration of titles, Thomson said.
He used the situation of purchasers buying real estate off the plan to illustrate his point.
“Those people buying off the plan on a greenfield estate where there is nothing but grass and trees and a for sale sign, they’re getting in early on their purchase and therefore are entitled to the most affordable price. [Then] as you drive through the milestones during construction, that’s the only opportunity for price growth in development in the coming 12 to 18 months in our view,” he said.
According to Thomson, the situation should not necessarily deter SMSF members from investing with a fund manager specialising in property development as they have alternative methods to create value.
“Certainly we enjoy market growth, but we’re not driven by market growth. We look to create and add value to a property via active development” he shared with the audience.
“So there are micro markets and sub-regional CBDs and things like that [allowing us] to enhance projects.”
Elements such as this will add value to property developments as they will be attractive in providing accommodation for workers in those satellite locations, allowing them to live very close to their place of employment, in turn sparking demand, he noted.
“Proximity to a major capital CBD is one of the most overrated metrics in driving property value. Its not relevant to your average buyer in a greenfield estate who has no desire or reason to frequent the CBD and instead wish to live close to their particular employment hub, retail amenity and where their children attend school. With the recent pandemic further fast tracking this decentralisation, this has become even more relevant where the onus is on developers to identify growth market opportunities” he concluded.