Karratha WA

[pango]

Geez Ian,
I hope your just having a bad PI day. There a few posters that have IP's in Karatha, and I expect there would be some differing opinions amongst them. Ya made me want to end it all.
I agree with your comments on the RW developments though, particularly about the future gains being built into their construction price. This is a trend well underway in Broome (RW territory), where builders will quote you on a job, either new or reno/addition, and they will charge extraordinary Sqm rates. This is to be sure they get a share of the CG you will obtain from the heartache of it all. The agents in town are aware of this too and it @#$$%% everyone off.

I think the town will undergo a transformation over the next couple of years. There will certainly be more and more building activity until it reaches a point where there is little or no point in committing yourself to a large lend and a big top up. At present, most people are in a CF+ situation on houses and Villas, but flats are gonna change things somewhat. I reckon that the first thing that will happen is the camps will disappear over time indicating that there is better value in renting places for employees rather than providing that type of accom. It is a very expensive way of housing people and is usually done for short term needs anyway. This is what will take care of the occupancy rates for the flats you speak of. Families will always look for other housing options first and go for those types of properties last. Based on that you are absolutely right to poo poo the idea of buying there.
Some people have a strategy that is built around this type of IP and providing the dollar average is safe, everthing works fine overall. I have 1 of 3 properties in karatha but have resisted buying again. It does have a level of volatility and the returns have gotta be too good to last forever.
The industry there is all long term stuff that is not going to disappear out of town and this is what most PI's see as their security over time. Rents and property prices will rise and fall, it just depends where you get on the train, and where you get off. I take a lot of comfort out of the fact that my trusted Bank Manager bought there this year too. His 1m investment made my 600k look low risk by comparison.
Finally, if you let your fingers do some walking, there are other PM's in town that are negotiable on rates, or at least they were late last year. I have a 5 year Govt tenant and I make about $100 p/week after costs. 5 year fixed money and I can forget about it until 2012 and see if it was a good idea after all.
KPH posts here regularly and has a sound strategy and immense knowledge about the area. I would like to hear what he has to say about the current situation.

Cheers
Pango.

 

[Ausprop]

This is a trend well underway in Broome (RW territory), where builders will quote you on a job, either new or reno/addition, and they will charge extraordinary Sqm rates. This is to be sure they get a share of the CG you will obtain from the heartache of it all. The agents in town are aware of this too and it @#$$%% everyone off.

is it the builder or the tradies and suppliers under the builder? curious to know what you would see as an extraordinary sqm rate? bearing in mind the cyclonic requirements and isolated nature of the building and extreme cost of housing the trades.

 

[Ausprop]

from todays West. I have no clue what abolishing neg gearing would achieve seeing as they are pos geared!


House costs could ruin Pilbara, say senators

17th June 2008, 8:00 WST


The cost of housing in the Pilbara is so high that it is impossible for towns to function as normal communities, raising the risk of “death by boom”, a Senate committee on housing affordability has found.

In a major test for the Federal Government, the Senate committee also recommended the $7000 first homebuyers grant should be increased for those who buy a new house but cut for those buying an established property.

It also recommended that negative gearing arrangements be reviewed by the tax inquiry being conducted for the Government by Treasury official Ken Henry in light of calls for it to be restricted to new rental accommodation.

The inquiry, headed by Liberal senator Marise Payne, focused extensively on the plight of homeowners in the Pilbara, finding house prices in centres such as Karratha meant it was impossible for towns to be “normal” communities.

It found poor planning by government agencies and competition from mining companies willing to pay almost any price to house a worker meant anyone not employed on a mining wage could not afford to live in the area.

The inquiry found people who were unable to afford the average price for a bedroom rental in Karratha of $350 a week were often forced to live in a car, a tent or in the bush.

Even getting builders into the region to construct new homes was virtually impossible. “The lack of affordable housing in the Pilbara has created a vicious circle where it is hard to get builders to come to the region to build housing because they cannot afford to live in the Pilbara due to high housing costs,” it found.

While LandCorp told the inquiry the extent of the demand for housing in the Pilbara had caught it by surprise, the Senate committee recommended the WA Auditor-General assess the agency’s performance in the region over the past five years.

The committee said the State Government had to lift investment in public and community housing across the region and should create a highlevel emergency task force to come up with solutions to the shortage.

The inquiry found there was a shortage of about 30,000 houses a year across the nation, with one impediment being State and local government planning processes and fees.

While WA’s stamp duty compared well with other administrations, the committee found planning processes were often complex, making it difficult to move quickly to bring land and homes on to the market.

The inquiry baulked at demands for councils and State governments to release big amounts of land on city outskirts, warning this could create problems such as expensive transport.

The first-homebuyers grant, now worth $7000, was introduced by the Howard government when it brought in the GST. The committee heard evidence that the grant was inflationary and that there may be a need to reform it, primarily through the Henry tax review. “Such consideration could include reinstatement of the scheme’s original structure, which gave a larger payment to purchasers of new dwellings than purchasers of existing dwellings,” it found.

Although not recommending negative gearing be abolished, the inquiry took evidence that it may push up costs for people in the rental market.

SHANE WRIGHT
ECONOMICS EDITOR

 

[pango]

Ausprop,
A friend of mine was recently quoted 180k to put a granny flat type of addition above his carport. It was 60 sqm.
When he suggested that it was probably more than he could afford, the builder replied that he should consider it as it would put about that much onto the value of his property.
When I was discussing this with an agent friend of mine in Broome, he told me that it was commonplace for the "quoters" to assess the CG the development would attract and get as much of it for themselves. Now thats just business I suppose, but in a competitive market, this would not happen. The fact that its a long wait for "tradeys"and the ever rising cost of materials, its been hard to put a finger on what is the going rate as its ever shifting lately. 2500-3000 bucks psqm is the going rate I am told, but I do not have anything other than conversation to base this on right now. I suppose a couple of phone calls would give a better idea of price and availability.
In Nth queensland where I am currently based, $1100 psqm is the norm for a new build on 20-26 weeks timeframe.

Big difference ?

Pango.

 

[Ausprop]

your sqm rates are pretty spot on ie. $2500+ for a full turn key product. the $1100 you are paying is way below cost in karratha so that could just never be a retail price, at least not till rents come down dramatically to start with, even then with the raw cost of materials as they are i just don't see how it could be done. you can't even get that rate in non-cyclonic Perth

there is no solution unfortunately. we offer clients superior energy efficiency (8 star plus) and a quicker build time, but unfortunately trades and materials cost what they cost. labour is competing against mining pay rates which could account for part of the difference.

 

[Ian (WA)]

'Evening All,

Just a quick reply as my first long winded attempt fizzed off into cyber space because I took too long to write it.

Pango, you have essentially reiterated my underlying thoughts on Karratha in general terms.

Rest assured the new super camp opposite the cemetery is here to stay as is Woodside's new accommodation / camp proposal. The Karratha Plant Manager instructed that the camp be long term (functional and able to accommodate increased sizing in work force for next 20 years) and amenable to families and it must have a resort style feel. Woodside are also advertising their involvement with The Ranges on their company wide internal "Intra-net".

I think it is appropriate and reassuring that other investors in Karratha would have a differing opinion to mine as we all invest differently here......which says the local market is wonderfully diverse and robust enough to drive different micro markets.

My view is the short term apartment style accommodation is not driven by tourism like Broome is (or at least was up until resource activity joined the fray). I firmly believe this style of accommodation will feel the brunt of the eventual subsidence of construction activities long before traditional houses and land. Most of the tourists into Karratha arrive in caravans and have no need for apartments; they don't tend to fly in as it's too bloody expensive and most seats are taken by fifo personnel.

I know KPH well and I know just enough of his focus to suggest that he and I are doing things very differently and on totally different scales. In this respect we are worlds apart, but our short, medium and long term views on Karratha are in relative concurrence. I think one of the great positives is that we are both doing very well in our own way. I'm quite confident you won't find Kevin purchasing apartments in Karratha.

Please don't think i'm anti Karratha for PI, or poo pooing Roems' desire to invest here (nothing could be further from the truth; I have two IPs currently leased to Woodside and am about to build a third). Nor am I anti apartments. I just wanted people to be aware that there are a lot of other wheels turning in the resources sector (some are just starting to turn, others are well and truly coming to a halt).

Other local short term stay may be somewhat dated etc. but the real factor to consider is RWs 90 - 95% occupancy quote is somewhat......Poo Pooh and based on out of date information. The KI hasn't had a full car park for nearly two years and I can't recall when I last saw all the rooms appearing to be fully occupied (as in cars / company utes parked outside) except perhaps for FeNacLng last year when the carnies and sales people came to town. Best Western Karratha Central Apartments have had a higher occupancy (once again based on cars / utes outside rooms and parked on lawn verges opposite the complex), but currently have regular vacancies now all the construction camps are being completed (and there's plenty of them springing up). The media, pollies and RE agents are not telling everybody the real story......surprise, surprise.

There are many ways to do well out of Karratha and other centres in the Pilbara, Mid West, the Gascoyne and Kimberley.....now that's a sh#t load of real estate to consider, but I bet most will offer better returns (yield and CG) than what Rapley Wilkinson are flogging........particularly if you are looking at dishing out $600K plus!!

As I said in my original post in this thread, just be very selective about what you buy in Karratha.

Happy investing everyone........the world is your oyster, or pearl farm!!!.......or iron ore site, or gas plant, or gold alluvial, or diamond field, or nickel deposit,.......or rental property

Cheers,

Ian.

 

[kph]

I'm not sure what I can add to all this, maybe some personal experiences will help.
Shane Wright's commentry hits it pretty much on the head.
The place is heading for 'basket case' community status if they are not careful.
The blow torch of scrutiny and accountability needs to go on govt departments and specifically Landcorp for this current mess.
Their lack of timely action and the rediculous ballot system needs a big overhaul.
The cost of building in these parts is simply diabolical, and EVERYTHING is tied to overheated rents.
However, rents have improved since December and there are more properties available in the market now, when there were none around Dec 07.

I am an investor first, but we have formed a building company which currently builds in Karratha so we know first hand how the rental situation has impacted on our ability to get trades or to keep them once we do get them.
Ausprop is a partner in the business so also has a clear understanding of both the situation, costing, and the logistics of building in this area.

There is no shortage of tradies willing to work or to come to Karratha for work but if they can't be housed, or can't find affordable accomodation then they can't come or stay.
We ourselves are all currently living in caravans on our industrial site in Karratha.
I do it on principle, as I am not prepared to be held to ransom by the extortionate rents being demanded.
The other building workers who work for us do it to save money, and the balance actually prefer it to sharing a house or a room in a house as they get more privacy in their own van. Its not good for them to be on site all day and then go home to share the same house or room, 7 days a week.
We have had two just join us and consider what we offer 'sheer luxury' as they are currently staynig in a tent !! Its all relative I guess ??

But this is the 21st century, and we are supposed to be a first world nation (??) and this place is supposed to be the resource capital of Aust. propelling the whole national economy, so the current situation is in fact scandalous.
We have written to the minister, we have had the local paper call her, but its too far from the city and there are not a lot of votes up here for them to really worry.

The state is currently under siege due to the 30% reduction in domestic gas production. Maybe we should get their attention on the situation on the ground in this town by reducing the balance 70% to zero flow. ( Ian, can you hit that big red STOP button mate??)

Anyway, Ian is right. I would not be buying apartments in Karratha. Our investment strategy has primarily been to buy vacant land, add the house and go from there.
Our experience being that the cost of the land plus house will result in a market value far in excess of this initial cost.
(Sometimes the difference between the two would be as much as $300,000.)
The lack of local builders made this a bit of a problem, hence we formed the building company.
As a result our direction has now changed as we are getting enquiries from developers who operate in regional areas looking to work with us in partnership to offer house and land packages on their lots, as they also recognise that there is a greater margin available if they offer the complete package vs just selling the vacant lots.

So this strategy can be replicated in many regional centres, especially where there is demand for new housing when all that is available is old stock that may be 25 or 30 yrs old.
The new stuff will always command a premium price as we all want a certain amount of 'lifestyle' comfort especially in where we live, regardless of whether we live in a regional area or the city.

But as far as Karratha is concerned, the cycle is no different than anywhere else.
The market is currently slow, and is correcting.
Those who bought in the last 2 yrs have done very (very!) well, and those 'Johnny come latelys' who bought at the peak, will probably get burnt, their only saving grace being that yields will remain much better than in city areas.

Kevin..

 

[Ian (WA)]

Very well said Kevin.......

.......and IMHO enough said for anyone to make an informed decision on investing here.

This thread coupled with many others pertaining to Karratha provides a sh#tload more info than people get from a 'Hot Spotting' report in terms of tangible, relevant and useful information over and above what any statistics will ever provide.

You ever thought about putting out a regional Investors report or the like????



Cheers, Ian.....will catch up soon for that coffee.

 

[whitey]

G'day folks,

A little more intel to add about prices on the ground in Karratha.

I have just bought a 4*1 in Cowan Way for my employer for $735,000 (I did the final inspection yesterday). It's old stock (ex GEHA) with an extra room added. It was initially listed for $790,000 so the market does appear to have softened a bit. I think it's reasonable, but not great, value.

I have a 4*2 that's 50%+ completed on a block in stage 1 of Nickol West (Falcon Pde). Total cost of house and land (building with Rapley Wilkinson) will be $590,000 (plus interest costs). There would seem to be plenty of potential for positive cashflow and/or capital gain here. I think this represents excellent value in the current climate, although the cost now for the package would likely be $100,000 more.

I missed out on Stage 2 of Nickol West - doh!

My own questions basically revolve around the depth of the market. There are companies willing to pay $2000+/week rent, sure...but there must be a limited number of employees that they are willing to accomodate in this price range (?)

The top end of the market still seems to be holding up well due to extremely limited stock, but I do wonder whether things will come off the boil a little once the newer houses from the Tambrey and Nickol West developments start to come onto the market.

Cheers,

Rob

 

[kph]

G'day folks,

The top end of the market still seems to be holding up well due to extremely limited stock, but I do wonder whether things will come off the boil a little once the newer houses from the Tambrey and Nickol West developments start to come onto the market.

Cheers,

Rob

Congrats Rob on your acquisitions!
You're way in front as a result of those two properties.
I would have thought the 4 x 1 in Cowan Way was good buying in the current market, and would be intrested to see what it vals up at, and rents for.

The newie in Nickol West should val up at $900k plus so heaps of instant equity there simply for putting down a $5k deposit and going in the ballot.

Pity its a tinnie, and there is too much of it up there and the market really needs something different.

We have been allocated a lot by Landcorp in the proposed display village which we should commence building on soon, along with all the other Landcorp endorsed preferred builders, who promote alternative building materials, so hopefully we can get some change into the market and get away from the tin sheds and brick jobs currently dominating the landscape.

We intend to document the progress of this build on our website as soon as it is up and running, so this should be interesting.

I agree with your opinion that the top end of the market is holding up still.
One local builder has just sold three of his and they all went to contract for $1 million plus.

At some point the market has to equalise ( when supply finally meets demand) and it will be really interesting to see how properties val up then, and what happens to the old stock at the other end of town.

Kevin..

 

[Petal]

bump!!

I am just curious to hear from those on the ground what is happening with property prices and vacancy rates now in Karratha with latest news of more axing of mining jobs.

 

[Ian (WA)]

G'day Petal & All,

Probably a bit too soon to gauge any major impact from loss of jobs here presently as most companies are holding their ground. I don't know if too many local Rio staff will be impacted just yet. There doesn't seem to be too much rumbling from other companies....yet!!

I was just talking with a local tradesman this morning and he has a mate (local RE agent) who knows investors based in Perth, but working in mines, who bought here over the last three years and have now been retrenched, so he is actively sounding them out and making very low 'rude' offers to 'ease' them of their financial burden. Morally I would disagree with this......if I had morals.

My clear impression is there are $hitloads of properties up for sale in Karratha presently. We are back up to six pages of newspaper listings, when only early last year an agent would be lucky to have 10 listings. Prices are coming down slowly, some of the better presented properties are selling shortly after listing, whilst others are floundering.....but most seem to sell and from what I hear, without too much discount taking place.

Rents are still exceptional and supply of housing is not yet outstripping demand. With newer residential construction underway (but most of it committed to Woodside, Rio, Indigenous groups, State Housing) I don't believe we will see an over supply as such. Another land release at Baynton West is about to take place, but I believe it won't cause too many issues as out of town investors will either be scared off Karratha, or are afraid of losing their own jobs so will hold tight without further acquisition. To that end by time the ballot takes place, I would not be at all surprised if it fails to be fully subscribed and may well face a delayed release.

Another good thing to come out of it will hopefully be some of the multi apartment style developments proposed at the old drive-in site (with stunning views over the old dump and light industrial area....God help us!!) and for the Tambrey complex may be withheld by developers for some time.

Once Woodside finish their Pluto construction, there could be a reasonable number of 3 & 4 bedroom houses they are currently leasing from private investors come back onto the rental market......how many?....I don't know, but I do know these leases are not going to be renewed at expiration of the optioned period......unless the project is delayed for any reason. Some of their staff are already FIFO with others to follow, but some will stay as permanent residential in housing outside of the camps.

My view is there will be some really good buying opportunities for people who research well and target distressed vendors, but bear in mind the local agents, God bless their darling souls, will be hell bent on keeping pricing sky high.

I say, it's us against them!!......Lock 'n load hombres!! Aim for their knees, cut 'em down!! Let's see blood in the streets........Yeee haaaaaa!!!

Bugger off Wayne & Moorey, get back to your panel!!

Cheers,

Ian.

 

[capitalEyes]

Cash monsters

Petal etal

Did a quick analysis comparing a commercial unit in Hedland Pl with all outgoings paid for and not a too shabby rental return with some residential 3x1 **** boxes and the Cash on cash, ROC, NPV, whatever you like to call it, came up trumps on the residential, on a net rent basis.

During the due diligence phase, heard from a real estate agent there that prices had come back 70-100k since last Oct and that rents had not yet followed suit (but would in the near future). Gov't leases were starting to incorporate market reviews with the expectation of rents adjusting downwards slightly.

There are stock standard houses returning above 11% gross yields which equate (with our quick numbers check) to approx $20k incoming cashflow after expenses for an approx $620k purchase (95% lend). Just getting a Co & discretionary trust setup now for an offer by the end of the week...

I've been a -ve gearer until now (in low doc's ville), so lets see if this positive cashflow stuff can get the banks back on side.

Cheers
cE

 

[marg4000]

In December 2008 a 180 room accommodation village was completed for one of the mining companies. This may affect rentals and prices.
Marg

 

[Dazz]

Just getting a Co & discretionary trust setup now for an offer by the end of the week...

How'd it go ??

 

[capitalEyes]

Agent drafts the offer?

How'd it go ??

Not bad - structure is set. Received the offer from the agent (something wrong with that picture) with all sorts of holes in the special conditions. Deleted one and completely re-wrote the rest to allow us to exit the deal at our complete discretion on financing, building inspection, white ant clearance, air con inspection, state of appliances, and stipulated a signed 12 month lease agreement with the current tenant within 21 days.

Counter offer has come in with a $20k price reduction, but some wording that looks a bit like a sunset clause – ‘we’ll accept your offer, but if we get a better one, you have 10.3 minutes to go unconditional’…..have some more re-writing to do.

 

[Dazz]

Classic - nothing like having the Vendor's paid agent write the offer document and T&C's back to the Vendor for him to peruse.

Sometimes I wonder if they could arrange it all, they wouldn't have to even speak to the Buyer.

You know better than that cE.....grab that pen out of the agents hand and order them to sit back and relax.

Any buyer who allows the vendor's paid substitute to write an offer to the Vendor needs....in the words of Kerry...."his head read".

Send us a PM with the juicy bits.

 

[capitalEyes]

"special" conditions

They were special conditions indeed. The building inspection report stipulated that we could exit the contract if there was significant structural damage to the main building. I re-wrote it to stipulate that we could exit the contract without penalty if we didn't like the colour of the paint used internally (at the purchaser's sole discretion was an oft used term).

Similarly the white ant SC alluded to significant internal damage having been done as the only pre-condition for exiting the contract. Not sure why they try this sort of stuff on....again out with the liquid paper.

No liquid paper on the sunset clause - this was struck out as is because there was a bit of satisfaction in running the pen through those ridiculous words and leaving it there for the vendor to see.

Agent then pulled a swifty on us. Said that our conditions had all been accepted but that we would have to come up on price. We came up on price on the basis of the T’s & C’s being accepted and then the sunset clause was re-introduced. Another agent who apparently wagged the Real Estate Ethic’s lecture.

Struck out the sunset clause (again) and dropped the price, gave them 24 hrs to get an autograph on it and voila – acceptance, finally.

Did our sales history check before committing and it does appear that prices have come back a bit since last year, but may come back further too. Who knows – certainly if I plug in the forward looking information from the West Australian, I have most certainly just purchased a lemon.

Looking forward to settling on something that generates some cash, and get’s me a bit closer to sacking the boss. Might even do a bit of a McKnight regional +ve geared frenzy and buy another one….if the sky doesn’t fall in from the current GFC.

Now – have to convince someone that I’m worthy of a 95% lend.

 

[phil]

Just got this e-mail if anyone is interested...Too rich for me though.

DHA will be releasing the following properties at 12 noon tomorrow Thursday EDST. These properties will be snapped up sight unseen. PLEASE NOTE DUE TO THE REGION BEING A MINING AREA THE MINIMUM RENTAL FLOOR GUARANTEE DOES NOT APPLY to the properties. 12 year leases 10.4% return, purchase price $900k & rent of $1800 per week.

Region DHA ID Address Suburb M/ment Fee % Lease Term + Option Price Rent p.w. Bed Bath Car Yield (%) Const yr (approx) Living metre sq. (approx) Land metre sq. (approx) Council Rates Est. p.a
KARRATHA 2643176 10 Raynor Road BAYNTON 16.5 12 + 3 years 900,000 1800 4 2 2 10.4 2008 185 640 2255
KARRATHA 2643154 15 Raynor Road BAYNTON 16.5 12 + 3 years 900,000 1800 4 2 2 10.4 2008 185 640 2255
KARRATHA 2643143 17 Raynor Road BAYNTON 16.5 12 + 3 years 900,000 1800 4 2 2 10.4 2008 185 640 2255
KARRATHA 2643198 20 Raynor Road BAYNTON 16.5 12 + 3 years 900,000 1800 4 2 2 10.4 2008 185 640 2255

Kind regards
David Clynch
Regency Park Developments
Contracted NSW and National Property Sales Consultant
80 George Street
Parramatta NSW 2150
T: 02 9762 5610
M: 0408 227 802
F: 02 9762 5688
E: [email protected]

Phil

 

[AUSPROP...]

Small world - had a house on Raynor Rd. Sold it a couple of years ago for $415k unfortunatley. interesting that the DHA is offloading now - why? And why is it that this dept acts as a property developer with land allocations received with preference over the private sector?