Investing in the Anchorage Estate at Rockingham-Shoalwaters Suburb

[paulie]

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Dear Paulie,

1. Sorry, I do not quite follow your idea in your post. Can you further clarify/elaborate the idea and its underlying rationale, please?Kenneth KOH

Reading through your previous posts I thought you where considering selling two properties because you are worried about what direction the market is likely to take - ie your discussions on a potential global crisis - discussions on the asian financial crisis etc, and then you would move over to discussing the idea of not wanting to sell your self too short because th emarket is booming. So my suggestion to sell only one of the two properties.

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2. I have already received written offers for $465,000 and $335,000 for my 2 houses at 21, FitzGibbon Road and 17, Broughton Way respectively.

3. Why the need to subject both the properties to Expression of Interests arrangement for a 3 weeks trial? I may risk losing the present potential buyers who are offering above market price already. It has further been said that normally the first buyer's offer is the best price offer for a house for sale. Do you not agree?
Kenneth KOH

Kenneth, the offers you have received are now officially the market price offers. They are not above the market, they are the market. And until you actually put your properties on the market for sale and see what other ready willing and able buyers are prepared to pay for your properties, there is a good chance that the offers you have received are actually below market offers. The guy who told you the first offer is usually the best is the real estate agent who brought you the first offers and would get paid if you accepted them.

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4. Please note that I still have another one house at 26, Properjohn Drive plus one piece of vacant land at Lot 2012, 26 Eldon Street at the Anchorage Estate, together with a third house at Lot 1753, 8 OceanRunner Blvd which I have co-ventured with my own brother-in-laws and which is due to reach its Final Completion Stage in about 2 months time.

5. Am I missing your point by my present response?

6. If so, please clarify further.

7. Thank you.

regards,
Kenneth KOH

Good luck

paulie

 

[redwing]

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. It has further been said that normally the first buyer's offer is the best price offer for a house for sale. Do you not agree?

Kenneth KOH

My First Offer is "never" my best Offer kenneth

Redwing

 

[TomL]

I would just like to say that this is a most interesting thread..

The insights it gives from a bunch of 'doers' into the due diligence, their thought patterns, putting their $$ where their talk is, and their unselfish willingness to share is awesome.

Anyone new to investing in IP would do well to take note of this thread.

Cheers everyone,

Tom.

 

[kph]

I thought the same thing yesterday...this thread is getting more interesting.
I guess to some extent it tracks the history of Ken's journey in this area as well as the change in the marketplace in Perth over that time.

It also hints at the mindset that develops when you are holding low yielding property, and continually leveraging off it, as well as wearing the holding costs while some are under construction.
Quite a juggling act to manage your cashflow, especially if you are using drawn down equity as that cashflow.

I believe this eventually 'spooks' you into selling just to reduce some of that debt load.

Noted both Ken's and Ausprop's quandry as to whether its better to sell and pay the resultant costs and taxes this triggers vs holding on for the longer term. I think doing a mixture of both is one answer that satisfies this problem. Treat some as trading stock to turnover, and keep some to build up wealth.
As for whether its worth reinvesting the proceed back into WA ?
Its getting harder and harder to find anything that resembles value, let alone having five mnutes to consider the deal before it is sold in the current frenzy !!

Take Capricorn at Yanchep.
We were made aware of the stage 2 release by prerelease to 'expression of interest' holders, and it seemed to take a couple of weeks to sell out.
Once again, stage 4 is pre released to EOI holders, one week prior to hitting the open market, and while we are looking at the layout and pricelist and deciding whether to call the agent to discuss further, word comes back the day after the prerelease, not to bother calling the agent.
All but two blocks already sold, and apparently people were camping out at the site office to get in first. And there are some pretty restrictive covenats attached to the purchase specifically with regard to having to build within a set timeframe, and not being able to sell the vacant land without first building on it.
This should deter any speculators and flippers, so it would be really interesting to know what the makeup of buyers were.
I know of a few WA forumites who are actively looking to buy in Melbourne and Qld as a means of diversifying some of their holdings out of WA.

kp

 

[Kennethkohsg]

Dear Paulie and Redwing,

1. Personally, I know that it is not neccessarily true that the first offer is always the best offer.

2. I say this from my own personal experience in selling off my own 2 Goldcoast properties in 2002/2003.

3. I was initially first told by the RE agent that my former house at 17, Montzema Drive. Burleigh Waters Qld4220, would at best sell for A$150,000, some time in late in October 2002.

4. The RE agent then quickly got me 3 buyers' offers with the highest offer at A$155,000, after a week of putting the property on sale.

5. As I knew then that I was selling into a fast rising property market, I decided to increase the asking price to A$199,000 instead, having done my own research and due diligence via the internet.

6. At the same time, I also arranged for a market valuation to counter-check on the RE agency's appraisal's accuracy

7. The RE agent said that I am being "ridiculous" with my asking price then. He even went further to accuse me of trying to make things difficult for him. I told him that I have no free time to play with him as I have better things to do than to make his life/things difficult for him then.

8. I told the agent if he is not able to sell at the new asking price, I would let another agency sell my property instead.

9. I then refused to deal with the RE agent again and ask to deal with the RE Agency Principal directly instead.

10. He also produced some similar comparable sale data to show me otherwise.

11. I countered by telling him directly that since the property market is fast-rising real time, all his recent comparable sale evidences are at best, "inaccurate" and probably "outdated" to a large extent, given the fast rising market conditions.

12. I then challenge him to put my property for sale into the market with my asking price, for the market to decide. He reluctantly agreed.

13. However, soon he was able to come back to me again, a week later with 3 offers again, this time with the highest one at A$199,000.

14. By then, I began to grow suspicious of the RE Agency's professionalism and decided to wait out for the valuation report outcome.

15. When the valuation outcome came out initially, the house valuation price came to only about A$185,000.

16. I queried the valuer how could that be when I was then already had a buyer offering to buy the house at A$199,000 and given the fast rising market conditions, it would probably command a higher valuation price in the immediate near future.

17. I asked the valuer if he has checked/verified with my RE agency regarding the latest offers it have received, before coming to his onw house valuation price.

18. In response, the Valuer said he had. However, he refused to budge on his house valuation price outcome, as he has to base his assessment on currently available completed house sale evidences in the market.

19. Nonetheless, he agreed with me that he should be able to give me a higher house valuation price in the near future, given the prevailing fast rising market conditions, once the relevant market sale evidence are made available to him subsequently.

20. Given all these perceived discrepancies, I decided to trust my own judgement, despite being physically located in Singapore and not at the real market front at the Goldcoast property market, myself.

21. My wife and I then decided not to sell and to further wait out for another 3 months later to call for another second valuation exercise with the same valuer and see his second valuation outcome.

22. The same valuer subsequently revised his new valuation price for the same house upwards to $245,000 in March 2003.

23. I then arranged for the house to be sold through another RE agency, at an initial asking price of A$255,000. (Please note that this $255,000 price was actually the high end price estimate given by Domain and Property AddValue databases with the low end at A$243,000.

24. After 3 months of testing and actually putting the property for sale into the real market, we finally decided to accept the buyer's offer price at A$246,500 in June 2003 as we were perceving then that the market was soon about to peak and after we were satisfied with ourselves that the new RE agent has done the best for us what she and her RE agency could, in achieving the best price for our house, from the market.

25. Subsequently and effectively, we managed to have another A$90,000 more for our house sale, doing nothing but by simply waiting out to sell at this preceived market peak price, trusting ourselves and selling "cleverly" at the correct timing near to the market peak price.

26. Thus, for those who asked me how much more could we sell the 2 properties for if we were to continue to hold onto them for a futher 12 months period, I am clear-minded here to say that we could at least expect A$50,000 more, each per property, at the basic minimum.

27. However, given my own preception of the ongoing risks and my "nagging" inner uneasying (and unexplained) feelings of an impending financial crisis occuring in the near future, I will still say that it is better for us to sell off the 2 properties now, in order to be safe and prudent in our own property investing, despite more profits to come if we were to continue to hold them further for another 12-18 months period.

28. I think this must be how AUSPROP has felt too when he proceeded to sell off his own development project in the same Anchorage Estate.

29. Am I right, Ausprop? Care to share your own true reasons for selling them off too?

30. Thank you.

regards,
Kenneth KOH

 

[D.T.]

Hi,

Perth prices exceeding Melbourne's?

What is the basis behind believing Perth will go from being the cheapest state capital in the nation to the 2nd most expensive state capital in the nation?

 

[Kennethkohsg]

It also hints at the mindset that develops when you are holding low yielding property, and continually leveraging off it, as well as wearing the holding costs while some are under construction.

Quite a juggling act to manage your cashflow, especially if you are using drawn down equity as that cashflow.

I believe this eventually 'spooks' you into selling just to reduce some of that debt load.

Noted both Ken's and Ausprop's quandry as to whether its better to sell and pay the resultant costs and taxes this triggers vs holding on for the longer term.

I think doing a mixture of both is one answer that satisfies this problem.

Treat some as trading stock to turnover, and keep some to build up wealth.

As for whether its worth reinvesting the proceed back into WA ?

Its getting harder and harder to find anything that resembles value, let alone having five mnutes to consider the deal before it is sold in the current frenzy !!

I know of a few WA forumites who are actively looking to buy in Melbourne and Qld as a means of diversifying some of their holdings out of WA.

kp

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Dear kph,

1. Very well said indeed!

2. You have accurately captured the essence of the challenge which I think both Ausprop and myself are presently being confronted with.

3. "Treat some as trading stock to turnover, and keep some to build up wealth.". This is what my wife and I are presently doing when we were contemplating over the house offers.

4. Thank you for your kind words and suggestions.

5. Look forward to learning from you further again, please

6. Thank you.

Cheers,
Kenneth KOH

 

[tropic]

3. Why do you ask me this, Tropic? Is there any specific reasons why you want to ask me this question specifically?

Hi Kenneth,

Thank you for the reply.
The reason for asking the questions is basically to judge whether it's too risky to start building an IP now.
I never build a house and considering that it will take 12 months plus to build one, an opinion from someone like youself that has been doing it for few years will be valuable.
If I build one, it will be fully finance. Even though my bank manager has no problem lending money for IP, at the end of the day I have to service the loan. I quess I need to think whether is a big risk, what will be a likely scenario if we have a downturn in housing market in WA?
If I build now and complete in 16 months will I risk losing 10% and with a possibilty of making 20 -30%? If that is the case than it's still woth doing.

Can you share your thought?

Thank you.

 

[Kennethkohsg]

Hi Kenneth

I am interested to know what is your current LVR?
Can you set up a LOC and still hold on to all your current IPs?

If the market went pear shaped would you still be infront?? What is the worse case scenario?

Have you considered what the expected CG will be over the next 12 months?
I always look at what my combined properties are making me p.a. that always puts it in perspective for me.

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Dear BOO,

1. Presently, we have 2 LOCs with Commonwealth Bank at $480,000 and $75,000 respectively, based on 80% LVR.

2. We further have another 2 housing loans with La Trobe at $322,500 and $122,200 at 75%LVR.

3. My worst scenario is to lose the whole entire property portfolio if we "mis-manage" the cashflow available or/and become unable to service our monthly loan interest repayments, as a result of being caught in a sudden occurring and prolonged regional/world-wide financial crisis period.

4. My co-investment at Lot 1753 Anchorage Estate has achieved the initial Practical Completion Stage and we are proceeding on to achieve its Final Completion Stage in 2 months time.

5. Yes, I do agree with you to a certain extent that perhaps I am presently a bit too-leveraged to the hilt at this point in time.

6. Our immediate main challenge is however on, effective cashflow management and beefing up our contingency fund cash reserve buffer to meet any unforseen financial crisis occuring in the near future.

7. For your kind update, please.

8. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

Hi Kenneth,

Thank you for the reply.

The reason for asking the questions is basically to judge whether it's too risky to start building an IP now.

I never build a house and considering that it will take 12 months plus to build one, an opinion from someone like yourself that has been doing it for few years will be valuable.

If I build one, it will be fully finance.

Even though my bank manager has no problem lending money for IP, at the end of the day I have to service the loan.

I quess I need to think whether is a big risk, what will be a likely scenario if we have a downturn in housing market in WA?

If I build now and complete in 16 months will I risk losing 10% and with a possibilty of making 20 -30%? If that is the case than it's still woth doing.

Can you share your thought?

Thank you.

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Dear Tropic,

1. To be prudent and safe, I will definitely encourage you to include the possible risks and its related implications arsing from a possible WA property market downturn in the immediate near future, in your own risk assesement and calculation.

2. To me, the building risks are presently too high and open-ended, to make an investment viable. That is why I did not immediately proceed to build on my last vacant land at Lot 2012 when it was last settled in Feb 2006. I want to wait for another 3-6 months to review the risk again before making the decision.

3. However, if you intend to hold-on the property long term and are able to self-finance the land purchase and house construction yourself, are a long-term minded investor and fully cashed-up, and only under such circumstances, would I then, dare to encourage you to explore and to do your own proper due diligence first before investing.

4. Under such circumstances and bearing any unforseen prolonged financial crisis occurring in the near time and this is indeed a real big risk in/of itself and together with the present building delays and related building risks, and despite all these foregoing risks, I do personally believe that the investment can still be profitable over the long term as I have no doubt that the housing price in the Anchorage Estate, is quite well supported by the new lakefront townhouses' pricings, which Australand is presently selling them for about A$505,000-$525,000 price range and where physical construction of some of these lake-front townhouses are presently in progress now.

5. From what I further learn/know the future release of the later batches of the lakefront townhouses "land and townhouse" packages are likely to be sold at even higher prices at a later stage by Australand, well above the present going price of A$525,000.

6. For your kind update, please

7. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

If I build now and complete in 16 months will I risk losing 10% and with a possibilty of making 20 -30%? If that is the case than it's still woth doing.

***************************************

Dear Tropic,

1, Sorry, I do not quite understand nor follow exactly what you mean here.

2. Care to clarify and further elaborate your own thinking on this aspect?

3. Thank you.

Cheers,
Kenneth KOH

 

[tropic]

Kenneth,

Thank you for the reply.

If I build an IP now and find that when it's completed (approx12-18 months) the property market is experiencing a downturn, I wouldn't think it will go down that much. Probably 10% max????
But if it continues to go up, it can easily appreciate 20% or more???

What do you think?

 

[Kennethkohsg]

Dear Tropic,

1. In principle, I am agreeable with your present assessment provided that there is no major and prolonged financial crisis occuring in the near future.

2. Under these circumstances though, I personally tend to think the maximum fall is likely to lesser than 10% and the likely gains over next 16-18 months, is more probably higher and even upto 30%, all things being equal.

3. But let us to discuss your proposal more specifically here. What exactly is your land purchase price and building costs figures used for the house construction and what exactly are your own projections for the house price upon its completion some 16-18 months subsequently?

4. For your kind update, please.

5. Thank you.

regards,
Kenneth KOH

 

[Kingbrown]

Hi,

Perth prices exceeding Melbourne's?

What is the basis behind believing Perth will go from being the cheapest state capital in the nation to the 2nd most expensive state capital in the nation?

Supply and demand, like everything else in the free market. Our economy is on fire.

Cut&Paste:

Western Australia has the highest per capita output of any Australian state, with an economy that has been largely based on the extraction and export of mining and petroleum commodities, especially iron ore, alumina, natural gas, nickel and gold. Western Australia is a leading alumina extractor, producing more than 20% of the world's aluminium. It is also the world's third-largest iron ore producer, producing around 15% of the world's total iron ore output. Western Australia also extracts up to 75% of Australia's 240 tonnes of gold.

Western Australia's economy recently has benefited from an unprecedented amount of foreign demand for resources, particularly from China. This has contributed to GSP growth of 4.8%, 7.5% and 2.7% for the 2002/03, 2003/04 and 2004/05 financial years respectively. [2] [3] Perth has emerged as a significant administration centre for businesses in the mineral and oil and gas industries.

Agricultural exports are also important, especially wheat, barley and sheep products such as wool and meat. In recent years, tourism has grown in importance, with the majority of visitors coming from the United Kingdom and Ireland, Singapore, Japan and Malaysia.

Western Australia, with about 10% of Australia's population, generates over 25% of Australia's export revenues. Western Australians argue that this justifies a higher than per capita share of Commonwealth government revenues, a fact contested by residents of New South Wales and Victoria who express some resentment against "subsidising" the less populous states.

 

[Kennethkohsg]

Supply and demand, like everything else in the free market. Our economy is on fire.

Cut&Paste:

Western Australia has the highest per capita output of any Australian state, with an economy that has been largely based on the extraction and export of mining and petroleum commodities, especially iron ore, alumina, natural gas, nickel and gold. Western Australia is a leading alumina extractor, producing more than 20% of the world's aluminium. It is also the world's third-largest iron ore producer, producing around 15% of the world's total iron ore output. Western Australia also extracts up to 75% of Australia's 240 tonnes of gold.

Western Australia's economy recently has benefited from an unprecedented amount of foreign demand for resources, particularly from China. This has contributed to GSP growth of 4.8%, 7.5% and 2.7% for the 2002/03, 2003/04 and 2004/05 financial years respectively. [2] [3] Perth has emerged as a significant administration centre for businesses in the mineral and oil and gas industries.

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Dear KingBrown,

1. How's about this u/m less bullish report
"Talks over iron ore price rise unresolved",

whereby the follwing unfavourable points are being highlighted as follows:

"Some Chinese government agencies predicted the growth of China's iron ore demand would slow down in 2006, while supplies would increase sharply."

"China's moves to shut down small mills are expected to reduce the country's demand for iron ore by 60 million tons."

"China is also looking for other sources of iron ore. Reports say Indian mines, which mainly supply the cash market, and eyeing long-term contracts with Chinese firms."

2. Are you still as bullish as before now, having read this article? Or do you now start to share some of my present concerns?

3. What do you think will happen next to the present booming WA economy and its housing boom now?

4. I look forward to hearing and learning from you, please.

5. Thank you.

regards,
Kenneth KOH

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Talks over iron ore price rise unresolved
By Jiang Wei(China Daily)
Updated: 2006-04-05 07:03


China's latest round of talks with major iron ore suppliers has not yet resulted in a price agreement, despite the fact previous price levels have usually been set by April.

Talks between China's largest steel producer Shanghai Baosteel Group and major suppliers, including Brazil's Companhia Vale do Rio Doce (CVRD) and Anglo-Australian groups Rio Tinto Ltd and BHP Billiton Ltd, have so far been unsuccessful, according to a source close to the ongoing talks.

The source said the two parties were still at loggerheads and prices would remain at last year's level until a settlement was reached.

The fourth round of this year's iron ore price negotiations was launched earlier last week.

The China Iron and Steel Association criticized CVRD for making public its price demand while the talks were taking place.

A CVRD official told Reuters it was seeking a price rise of 24 per cent.

The association said the move was extremely inappropriate and in violation of rules governing international iron ore price negotiations.

"The price increase of 24 per cent requested by CVRD is not rational and cannot be accepted."

It is not clear whether the two Anglo-Australian firms are seeking similar price rises.

Chinese mills and iron ore traders accepted a 71.5 per cent rise at last year's talks, which were headed by major Japanese buyers.

Chinese Premier Wen Jiabao, on a visit to Australia, said that the price of iron ore should be dictated by market forces.

He was quoted by local media as saying: "The responsibility for governments . . . is to put in place a fair, open and reasonable market system, as well as to come up with a pricing mechanism that is in accordance with international practices."

Some Chinese government agencies predicted the growth of China's iron ore demand would slow down in 2006, while supplies would increase sharply.

The National Development and Reform Commission said the country's demand for iron ore would not increase at the speed seen over the past two years.

It was calculated that this year's growth in demand would be between 45.9 million to 58.8 million tons, it said.

China saw jumps of 75.9 million tons and 121.8 million tons in iron ore demand in 2004 and 2005 respectively.

China's moves to shut down small mills are expected to reduce the country's demand for iron ore by 60 million tons.

China is also looking for other sources of iron ore. Reports say Indian mines, which mainly supply the cash market, and eyeing long-term contracts with Chinese firms.


(China Daily 04/05/2006 page9)

 

[sparky23]

Hi Kenneth

I have just had a quick look at realestate.com and almost everything in the lower price range in Rockingham seems to be sold or under offer! They are even using as a selling point the fact that houses are NEAR to the Anchorage estate. With regards to the townhouses one of my blocks is backing on to them so I hope that will help with the house values. Is there a web-site promoting the townhouses and showing plans and prices - the Australand site doesn't show that information and I am interested to see what you get for your money apart from the lake of course!

Sparky

 

[Ausprop]

"26. Thus, for those who asked me how much more could we sell the 2 properties for if we were to continue to hold onto them for a futher 12 months period, I am clear-minded here to say that we could at least expect A$50,000 more, each per property, at the basic minimum.

27. However, given my own preception of the ongoing risks and my "nagging" inner uneasying (and unexplained) feelings of an impending financial crisis occuring in the near future, I will still say that it is better for us to sell off the 2 properties now, in order to be safe and prudent in our own property investing, despite more profits to come if we were to continue to hold them further for another 12-18 months period.

28. I think this must be how AUSPROP has felt too when he proceeded to sell off his own development project in the same Anchorage Estate.

29. Am I right, Ausprop? Care to share your own true reasons for selling them off too?"
----------------------------------------

My true reasons? Simple... the block was worth $200k, the house would cost $200k to build. what were they worth on completion at that point? $400k. The profit was all in the land, so why endure building. It was obvious to all that the price was soon going to go to $450k, but I would want 20% returns minimum. hence I sold and moved on to other new builds that are offering those sorts of returns... or estates wehre flipping was contractually not possible.

 

[Ausprop]

"2. Are you still as bullish as before now, having read this article? Or do you now start to share some of my present concerns?"

other articles are suggesting the Chinese are just talking it down. When you go to buy a house what do you do? pick it to pieces right? the price is too high, the house isnt quite right, I can't afford it etc.

for the Chinese to walk into negotiations saying "guys we have to have this dirt, we are desperate and our furnaces are about to close down without your ore" would not be smart.

So somewhere between the 2 parties lies the truth.

 

[Keen]

Kenneth,

I too have been given the thought of a downturn much thought.

I have just finished reading "Grow Rich with the Property Cycle" (Kieran Trass) and it seems to confirm my self educated beliefs that it might be a good time to start clearly formulating strategies when the downturn comes.

Its time I became much better educated about the market by closely examining and monitoring the key drivers of the market instead of solely my gut feel and perception.

I agree that the Perth market probably has 12 - 18 mths in it. This on a gut feeling and the messages coming from investors.

I too agree that it not a good time to build - the risk is too high.

To hold land or do a renovation to both sell in 12 months might be the right way to go. Yes speculate on the short term (my LVR is a little higher than I'd like though). But anything longer than that I start to feel uncomfortable.

Being stuck with a highly negatively geared property/properties when the market turns and rentals decrease doesn't appeal to me. They say a strong boom is followed by a long slump / downturn. I don't care to fork out a couple of hundreds of dollars a week for years for little or no gain.

And so I'll learn about and look at all the key indicators and decide from there.

I'm try to put extra money into my PPOR loan to get it down. Will definitely sell at least one of my properties within a 1 - 2 year time frame in the hope of wiping out any existing PPOR debt I may have.

I am I guess you'd say, taking stock of my situation, looking to decrease my risk, enhance my chances of survival for the impeding slump that will come.

Regards

Keen

 

[Kennethkohsg]

Hi Kenneth

With regards to the townhouses one of my blocks is backing on to them so I hope that will help with the house values.

Sparky

+++++++++++++++++++++++++++++++++++++++++++++++++
Dear Sparky,

1. According to what I know, it is best to avoid such kind of block as your house will be towered by the neighbouring townhouses and lose its privacy and thus, appear not to be so good for the owner-occupiers there.

2. Consequently, it is believed that such houses is likely to command a lower price vis-a-vis other similar houses in the same locality, all things being equal.

3. Thus, we were told to avoid such blocks when we were goiong about to choose our blocks for developmment for our Singapore investors.

4. For your kind update, please

5. Thank you.

regards,
Kenneth KOH