Greville Pabst Interviewed by PGA Advisory on the Melbourne Market

Interviewer: Most of our clients are buying off-the-plan developments, and you're doing buyer's advocacy in the traditional housing market. How have you found it? Are we post-COVID, or still in the middle of this market?

Greville: Look, I think the recovery has definitely begun, and I think that's going to accelerate for the rest of 2020 and into 2021. Even some of the banks have come out — yesterday HSBC came out, and another bank, and said that next year we're going to see growth in Melbourne property prices of 14 per cent. Now, that's a contrast from their first comments.

Interviewer: Quite a contrast.

Greville: What has happened with COVID — there's been a pause. That's all it has been, a pause. We've been constricted from being able to go about, in particular in real estate, and do our business. But the property fundamentals essentially remain the same. We've got low interest rates, we've got a supply of property that is very short, and the banks want to lend money now. It's easier to get a loan than what it was after the Royal Commission.

So we have all these conditions — without saying, the stimulus that both the state and federal governments put forward. All those conditions, the fundamentals, are so strong, so it's only natural that property is going to really take off, I think, in the next couple of years.

Interviewer: Yeah, totally. I completely can see how that's happening.

Cool. Ivan, that's a good — great, really good opening one. Yeah, that's it. I might ask another question about what you'd advise people getting into the property market. Is that something you —

Greville: Yeah.

Interviewer: So maybe how you started. Yeah, okay.

So Greville, how would you advise a millennial? Obviously you've got years of experience in real estate, and obviously you've got your own portfolio. Somebody starting off that wants to live in Melbourne — what's the best way to get into the market?

Greville: Okay, so there's lots of choice when you buy property, and property is now far more complex than when I — and even you — started to go out and buy property. There are lots of mistakes that people can make, particularly young people.

I think the most important thing that young people can do when they buy property is simply to get advice. Independent advice, from somebody outside of the transaction. If you're buying a property, why on earth would you listen to what the vendor's agent tells you? They're paid by the vendor. As soon as you walk into the property, the agent's job is to sell you, and for you to be their best friend. That's what happens.

So it's really important to get independent advice. It's really important for first home buyers to do their homework. And it's really important for them to buy the right property. There's a whole segment that we can talk about — how to select the right property.

But you have choices. You buy a very good property as a young person and that can set you up for the rest of your life. It can be the difference between going on a nice holiday every year or not, or having your children in a good private school or not.

Interviewer: So how do you get the advice? Say I'm starting out, I'm 25, I've got some cash together, maybe some money coming in from somewhere else, from the folks and whatnot. Who would I go to to seek that independent advice? Because I know you do buyer's advocacy — would that be somebody that you'd say, I mean, you're involved in the transactions, you're sort of not —

Greville: I think somebody with experience. Somebody like a valuer, someone with experience, a buyer's agent. But you need to do your homework there, like with anything. You need to look at their track record: how long have they been in the industry, what have they bought, what are their stories, before you select that. And then look at the professional organisations — are they members of those organisations, are they fully licensed? You need to do all those checks, like with anything.

That's very important when you're buying, because it's a big decision for a young person when they're buying their first home. It's the biggest investment many people will make in their lives.

It's very similar to when we go and buy a car. We just bought a car for my younger son, and I don't know anything about cars. So do I just blindly go and buy a car and take a risk? Or I get the RACV — I've got a mate who's a mechanic, he came around and checked it out for me. Otherwise I don't know what's under the bonnet.

It's the same with property. You don't know what's under the bonnet. I've seen some horrendous mistakes that set young people back years and years, and some of them never recover.

Interviewer: Well, I was almost one of those people. I think I was quite lucky. My first property I bought, I didn't listen to anyone. I bought an apartment in Elwood because I wanted to live in Elwood, and I was lucky — I sold it at the peak of 2017. I was actually lucky to make a little bit of money. But looking back on what that property's worth now, five, six years later, it's actually probably worth less than what it was then. So I learned a lot from that transaction.

Greville: Yeah, it's amazing. When I'm investing in property — and I've been investing in property for 30 years now — we look at cars. You look at collectible cars and you look at why 1950s air-cooled Porsches and 911s appreciate so much.

I know we've both got an interest in contemporary art, and it's the same thing. You look at the artists, you look at their work, you look at whether they've got international exposure. There's a whole bunch of things we look at. It's the same with whatever it is, whatever you collect these days. When I was a kid, people collected stamps and coins. It's probably changed now, but property is no different to that.

It's about collecting a scarce asset, not a homogenous one. You might go out to an estate and every house is the same, the only difference being the colour of the door. Those sorts of properties — the scarce assets are the ones that drive value, as I said before, whether that's cars or other artefacts or whatever.

Interviewer: So if you're in the market to purchase property and you've got a decent capacity to look at a more scarce asset — when we talk about art, everybody's talking about international artists, they've done exhibitions at X, Y gallery. What would be the criteria as a Melbourne, Victorian period home? Locations? What can you tick off, the things that you like when you're looking for property?

Greville: Look, through my lens I'm looking at probably a much wider lens, a longer list of things and attributes, because I know through experience what drives value and what doesn't.

So I'm looking at the street. I'm looking at one side of the street, maybe one end of the street. I'm looking at the continuity of housing styles in that street. I want to see a continuity of architectural style — I don't want to see a real mixed sort of use.

Interviewer: Why is that important?

Greville: I just think that consistency of an architectural style in the street underpins value.

Interviewer: Yeah. I think it's just nice.

Greville: And I'm looking at a whole bunch of other attributes. I'm looking at floor plan. I'm looking at orientation. I want to see a north-facing backyard, and many people don't understand what that is.

Interviewer: Some people think north facing is the front of the facade. Because you're spending most of your time in your living, in the outdoors, so that's essentially where you are.

Greville: You want all the sun where you're spending most of your time. And this is where things have changed nowadays — people living in this big box out the back with kitchen, living, family. We spend all of our time there and we have an alfresco area, so we want to have the most light in that room. In particular in Melbourne in winter, the sun sets lower in the sky, and it can get dark if you've got the wrong orientation.

So I'm looking at that, or maybe looking at an easterly backyard as well, where you get the morning sun. But I'm probably passing if I'm getting a south-facing backyard or west facing. And I'm looking at where the rooms orientate to, to that direction. So if I've got bedrooms facing west — no one wants to sleep in a hot bed.

These sorts of things are really important, and funnily enough, these are the factors that drive property value. If you get it wrong, those properties don't perform as well as properties that do.

Interviewer: So you're really going into much finer detail. When I've looked at property of late, I don't really look at the street. I look at the location, I like the area, then I'm going straight into the house. So the street looks like an important aspect.

What other things can you fundamentally go wrong on? Should we be doing inspections? Should we have conveyancers going through contracts? What other legalities or structural things should we be looking at in these types of homes?

Greville: Yeah, look, I always have a bit of a dance — some people laugh when I say that, but I have a dance. I walk through with my client and I point out things. If it's a timber house, I go and check out the timber window frames — are they all right, have they got white ants in them? I'm not a building expert, but I know when I can see a defect or not.

What are the floors like? The high point in the room is going to be where the fireplace is, but basically you can see where the stumps have gone and there's a fall in the floors. You can see cracks. I might see dampness in the walls. I look at the capping on the roof — are there any cracks in there? I look at the gutters — do they need repair? So I'm looking at a general level of repair.

If I'm unsure, I always recommend, before you buy something, for a very cost-effective amount of money, get a building inspection report. I get one every time I buy a property for a client, and it's like $660. I get a 100-page report with photos, and if something goes wrong I've got a bit of a comeback.

Interviewer: You're also one of the founders of WBP, one of the biggest valuation companies in Australia. How are valuations going in this current climate?

Greville: Yeah, I think it's been very difficult for a lot of valuers out there, because valuers rely on evidence and sales. So when the real estate market shuts down and there are no transactions — valuers rely on sales that have happened three months, six months prior. It becomes difficult when there's no sales evidence.

Interviewer: Is that coming into consideration, because there are clearly no sales, because you're not allowed to sell? Does the asset hold its value, or is it being diminished during COVID?

Greville: We've seen some falls in value, but the falls in value haven't been as much as what I would have expected. During COVID, median house prices fell by seven, eight per cent. It just shows you how resilient the market is. And what I spoke about before — these property fundamentals are so strong in Melbourne that it's really underpinned the market as a whole. So we haven't seen great falls in value.

When we talk valuation, it comes down again to some of the things I've been talking about, the attributes that drive value. Some properties that you buy will basically fall in value from day one.

I look at property as — every property has its own DNA, almost. Some properties will go backwards when you buy them. Other properties will perform at one per cent per annum compound for their whole life. There are reasons for that. But I'm out there for my clients trying to find properties that compound annually at seven per cent per annum. If they do that, the property doubles every ten years, if you've got compounding at seven per cent per annum.

Interviewer: Are there particular areas that you can make a reference to, regardless of spend or budget? Are there pockets — you're Melbourne focused — what would you say?

Greville: Look, I think it's a good question for young people. The first option is always a house. If you can afford a house within, say, 10 kilometres, 15 kilometres of the Melbourne CBD. If you can't find a house, maybe look at half a house — a semi-detached house, a maisonette, something like that. If you can't afford that, you go to a townhouse. If you can't afford a townhouse, then you go to an apartment.

Generally I'll select an older style apartment. I'll select something like an Art Deco, in some of the best streets in Elwood. The area in Elwood that I like is that area between Marine Parade and Ormond Road, where all the cafes and shops and restaurants and Jimmy Jams and all those places are — where you can walk out your front door, put a towel over your shoulder and walk down to the beach. Or you can walk another 50 metres the other way and go and grab a great coffee, or go to the Blue Tongue and have a beer or wine.

Interviewer: So these locations, and that structural build over a long period of time, is obviously outperforming other things.

Greville: They do, and it does come down to the street. Those streets in Elwood that I'm referring to — Beach Avenue, Pine, Kingsley, Bendigo Street, all of those streets down there. And there's the other village — Addison Street, Tennyson Street. All those streets have shown a really good history of growth. But they're older style low density blocks, eight, 10, 12 in a block.

Interviewer: What are your thoughts on — obviously we both have a property out in the Otway district. What do you think about, not so much regional Victoria, but say you're buying your next property, looking at buying a lifestyle property and Airbnb-ing it out? What are your thoughts on that?

Greville: Well, look, Airbnb, it's interesting. I don't know how that's going to go. A lot of those short-term stays are now being converted to long-term permanent, and that's flooding the rental market. So at the moment the rental market's very soft. Is it going to come back at some point? You hope so.

That sort of choice — I think lifestyle property is lifestyle. But are more people going to move and live in regional areas?

Interviewer: And will that factor in some good times for investing growth?

Greville: Yeah, that's a hard one. I think about that. Areas like Bendigo, Ballarat, Geelong, Kyneton, Macedon — those areas are really lifestyle driven. There has been a shift, there's certainly been a rush to get out of Melbourne and go to those regional areas, partly because of affordability and employment.

Interviewer: There's some bit of employment.

Greville: There's certainly some employment going to Geelong, in those areas. But longer term, will it outperform the Melbourne metropolitan area? I don't think it will. I think it's more of a short term, maybe two, three year thing. But once things start to get back to normal again, Melbourne will always outperform the regional area. History has shown that over the last 40 to 50 years — traditionally those regional areas have only grown at five per cent per annum. We're having a spurt now, but I think it will revert back.

Interviewer: Do you think, though, that for somebody that's only got a budget of $600,000, there's not much you can get in Melbourne? So that might change, might make people make alternatives.

Greville: The price point is an important thing to raise. For me, unless you have a minimum of $450 — and that's getting pretty hard — $450,000 will buy you a reasonable one-bedroom flat in a good suburb in Melbourne. Anything less than that is very hard.

Two bedrooms in Melbourne really start at about $650,000 to get a good one. Look, there are plenty of two bedrooms that you can buy for $500,000, but they're not good. So you either have to have $450,000, $500,000 to buy a one-bedder.

I'm trying to find a one bedroom for a client at the moment and they've got $550,000, and I'm struggling to find a good one bedroom for $550,000, because size is important when you're buying one bedrooms. You need to be over 50 square metres.

Interviewer: Is that for the banking side of things?

Greville: That's for the banking side of things. Some banks won't lend if you're less than 50 square metres.

Interviewer: But can you buy a house?

Greville: You can't buy a house in Melbourne, really, in the areas that most people want to live, where you want to invest. South Yarra, entry level is $1.5 million, and you need to do work to it.

Richmond — I've got a lot of clients that want to buy in Richmond at the moment, but again we need to be careful in Richmond. For me, I don't want to take my client outside of a grid between north of Swan Street, south of Bridge Road, between Punt Road and as far east as, say, Burnley. That's an area known as Richmond Hill, so it has strong capital growth. But if you're looking for a house in that area, unrenovated, even a townhouse starts at about $1.3, $1.4 million. And for a house you're looking at probably $1.4, $1.5 million entry levels.

When we go bayside — Albert Park, Middle Park, St Kilda West — entry level is probably $1.8 to $2 million. So it's quite expensive.

Interviewer: So where do you go?

Greville: Yeah, I agree. We can go to Belmont, Geelong, we can go to Newtown.

Interviewer: Do you think the market — a lot of people say this to me when we're talking about investing in real estate, and people aren't from a property background, they'll say it just can't continue to keep growing. Do you have anything on that?

Greville: People have been saying that to me since I was a young boy — property prices aren't going to keep going. But they do.

We look at Melbourne and Sydney: they are international cities. If you compare — if you're sitting in South-East Asia, let's say you're sitting in Singapore, or Jakarta, or KL, and you're looking at prices in Australia compared to the prices there, it's like, our property's cheap. Our property is incredibly cheap.

And we look at London, we look at New York, we look at Toronto. We're an international city, so I think we're undervalued. We're still undervalued when you compare it to those cities. And it's going to continue to go forward, and prices in the inner city areas of Melbourne and Sydney are going to continue to grow, because there's a scarcity.

As world cities, Melbourne is going to become more of a rental city, just as other international cities in the world are. Most people can't afford to buy a house in inner city London — you're looking at a minimum of six to eight million dollars to buy a little cottage in London. Whereas you can buy a cottage four kilometres from the Melbourne CBD in Albert Park for like two million dollars. So it's actually cheap compared to some of these international cities.

Interviewer: Makes sense.