The COVID-19 outbreak has caused a disruption in the property market — from the preferences of would-be buyers to the unexpected price movements in some markets. What should property investors consider when investing in this "new normal"?
Cam McLellan, co-CEO of investment advisory company OpenCorp, said investing in the new normal still involves understanding the three key drivers of the property market — supply, demand and affordability.
In his new book, Investing in the New Normal, McLellan outlined how would-be investors should navigate the property market in times of disruption such as the COVID-19 pandemic. He analysed major events over the last 35 years to come up with strategies in investing in the current climate.
In this exclusive interview with Your Mortgage, McLellan said shares his insights about the most significant changes the COVID-19 pandemic has brought to the property market. He also talks about the crucial considerations would-be property investors should take before breaking into the market.
Your Mortgage: What do you think is the biggest change the COVID-19 pandemic has brought to the property investing scene? What does it mean to invest in the new normal?
Cam McLellan: As much as the media would love you to think the investment world has changed, the fact is that supply, demand and affordability are the major drivers of market prices. In this book, which was written early to mid-2020, I made a number clear markets predictions: markets to be hit hard by price reductions would be the apartment market due to immigration and the desire for more spacious living. The commercial market due to remote working conditions and blue-chip investment property in affluent areas due to rent reduction. We made it clear that based on COVID-19’s impact to the three key factors that medium density property would still having strong demand as affordability was not being impacted due to short- and long-term government stimulus.
Your Mortgage: For novice investors, why is it important to have an understanding of the historical ups and downs of the economy in relation to the performance of the housing market?
McLellan: When I asked my first property mentor Steve, he said, “The best time to buy was 20 years ago, the next best time, as soon as you can afford it”. By studying past economic events and the reasons these events occurred along with the impact to supply, demand and affordability, novice investors are easily able to reduce risk when investing.
Your Mortgage: What is the most crucial consideration one should have before breaking diving into property investing?
McLellan: Investing should be treated like a business. In business, you follow process to get the best result. Investing without a proven process ends with failure or poor financial results. The process I outlined in my first book My 4-year-old the Property Investor outlines the key steps investors should follow to reduce risk at every stage when investing. By following a process to select the best property every time, regardless of market cycle or conditions, allows investors to fast track their wealth creation.
Your Mortgage: How do you see the property markets faring over the next two to three years? Will the pandemic make a long-lasting impact in terms of housing trends?
McLellan: While I don’t like to make short-term price predictions, I am very bullish about the coming three to five years in property. With very low interest rates, good affordability, and strong pressure on supply, prices will continue to rise across our major four capital city markets.
Your Mortgage: Are there such thing as "safe" markets when it comes to property investing?
McLellan: Safe investing is not about picking a winner — it is about knocking out losers. Losers are properties that will sit flat or correct over the short term. To knock out losers I use a process of elimination that I developed called MAP, which stands for market, area, and property. First, knock out markets that are not good for investment at that point in time, then when you have a couple of viable city options, look to knock out areas or growth corridor that have an oversupply or limited infrastructure planed therefore limiting demand. Finally, once you have identified a solid city and a good growth corridor then identify the optimum size and quality property for that area.