Paul Clitheroe
Ihad a good chuckle recently when I was introduced at a conference as an “industry veteran”. Feeling fit and healthy and full of vim and vigour at age 63, I pondered debating the “veteran” description but it is the truth – not only when I look in the mirror but in reality.
It is even more so when I look back to starting ipac in 1983 with my four wonderful partners, who are still dear friends. The revelations from the royal commission are pretty ugly but go back 35 years and the financial services industry was more like the wild west: zero licensing, managed funds with entry fees of over 8% and undisclosed ongoing management fees of over 3%, no consumer recourse for shocking advice except via our expensive court system, mainly retirees devastated by the collapse of fund managers such as Estate Mortgage, Telford Trust and Pyramid Building Society.
This is no excuse for bad behaviour today but being an industry dinosaur does also give me the benefit of living through a whole bunch of market cycles. Sure, nearly four decades is not a big deal in the long history of money but I’ve seen a fair bit.
Apart from rogues and various other characters, I also watched with amazement the sudden sharemarket collapse of late 1987, with prices falling well over 50%. I didn’t see that coming. But for those investors who hung on, shares recovered with surprising speed. It was the same in 2009 as the collapse of Lehman Brothers started the GFC. I knew not to sell but to see the collapse of blue-chip shares such as CBA, which went from over $60 to around $23, was quite amazing. Of course, a few years later CBA was back above $60. The point here? We won’t pick the big downturns but as they happen we should not be sellers.
This takes me to property, our favourite topic. I’ve seen long, flat periods, huge rises and some big falls. My mortgage hit 18.75% in early 1990 and property became unsaleable. What a time for buyers!
A potted history may interest you. Vicki and I bought a semi close to Sydney city in 1983 for $90,000. We lucked out and hit a huge upturn, selling for three times that price in 1987, and bought in the same area for $370,000. We took a loss on this one in 1993 when we bought a bigger house in the same area for $503,000. This one sold well in 1997.
From there the cycle continues. The house we bought in 1997 and sold in 2014 was OK. The numbers between purchase and sale look good. But add in inflation and renovation costs, plus stamp duty and sale costs, and the truth is it only kept pace with inflation over the 17 or so years. As so many of the ageing baby boomers are doing, we downsized to a suburb very close to the city a few years ago. Price is more an issue for our kids than us, as this will be our final home. We’ll see how that one goes. With population growth, I suspect it will do better than inflation.
Today I am watching the new “down” property cycle with interest. It is about time. I may not know much but I have learnt enough not to be a seller in this falling market unless I have to be. It is fine to sell if you are buying something else but in this cycle, which I think will get worse, I would not be buying without selling first and having a very strong letter guaranteeing my finance.
The people I am most delighted for are first home buyers. It is about time they got a break. Sure, we are going to see some pain. As the old saying goes, “You only see who is swimming naked when the tide goes out”. Sadly, some of those impacted will be quite innocent victims but the aggressively geared risk takers may discover the price of risk. Some lesser capitalised developers will go broke.
The long-term outlook for property is, as ever, all about supply and demand. Here I am sanguine. Australia's population is projected to be 35 million in the next 30 or so years. Both Sydney and Melbourne are projected to have over 8 million people. Those able to buy in this downturn are likely to see a continuation of the past. Wealth and population are growing rapidly. This will drive the next upturn in years to come.