Onslow - Thoughts of regional investors pls

Hi all,

I recently heard about a property a friend bought in Onslow, returns were around the 15% mark with 2-3 year leases possible.

I know there is going to be some Landcorp releases but from what i can see they are only 250 or so lots imo. Does Onslow stand a better chance of maintaining such yields and prices? 4x2s on large blocks are now over $1m, do any of you experienced in investing in the north have an opinion on this?

I have read through some WAPC docs including projected permanent and temp population increase from various projects etc. Of course $2.5k a week to live in the middle of nowhere is crazy but is it sustainable in the short-mid term say 5 years?
 
Getting suitable finance may be a challenge which may, in turn, influence the property market.

^ yep.

Recently ( Jan 2013?) 2/4 of the major banks advised they will no longer finance anything above 80% LVR for some of the regional towns mainly and capping the "yield" that can be used for serviceability

Derby 6728
Karratha 6714
Leinster 6437
Leonora 6438
Marble Bar 6760
Menzies 6436
Mt Magnet 6638
Newman 6753
Nullagine 6758
Onslow 6710
Pannawonica 6716
Paraburdoo 6754
Port Hedland 6721
Ravensthorpe 6346
Roebourne 6718
Sandstone 6639
South Hedland 6722
Tom Price 6751
Wickham 6720
Dysart 4745
Moranbah 4744

This will def push out a lot of potential buyers...
 
^ yep.

Recently ( Jan 2013?) 2/4 of the major banks advised they will no longer finance anything above 80% LVR for some of the regional towns mainly and capping the "yield" that can be used for serviceability

Derby 6728
Karratha 6714
Leinster 6437
Leonora 6438
Marble Bar 6760
Menzies 6436
Mt Magnet 6638
Newman 6753
Nullagine 6758
Onslow 6710
Pannawonica 6716
Paraburdoo 6754
Port Hedland 6721
Ravensthorpe 6346
Roebourne 6718
Sandstone 6639
South Hedland 6722
Tom Price 6751
Wickham 6720
Dysart 4745
Moranbah 4744

This will def push out a lot of potential buyers...

From what i understand, they will now use max of 10% of FMV. With IR of 4.99% fixed available, servicability is obviously not an issue.

In terms of it being 80%, that means only 250k cash needed for $1m purchases.

So yes, not 100% straightforward but to me it still looks attractive in terms of cashflow and also improving my servicability which will help me buy more sites.

Am i missing something? Ausprop, Hotrod and anyone else ive forgotten, what are your thoughts?
 
can still be done 90 with a decent buyer profile.

Some would argue 95, but I expect that while its true the chance of a decline increase exponentially.


As with all such things, the Borrower profile has a lot to do with what they can have access to

ta
rolf
 
From what i understand, they will now use max of 10% of FMV. With IR of 4.99% fixed available, servicability is obviously not an issue.

Bank serviceability and your "cash flow/ serviceability" is completely 2 different matter...the bank will still take in 10% gross FMV and discount by 80% and than use a serviceability interest rate of 8% --- yes you might be able to service the loan...but it's not just about you lol - it's about your "future buyer" or the general market...it limits OTHER ppl from buying.

In terms of it being 80%, that means only 250k cash needed for $1m purchases.

Not everyone has 250k :) or wants to use that much cash on a regional town purchase. As mentioned it comes back to your future buyer/market.

Great cash flow, but capital growth not to sure and if*** hits the fan, how fast can you off load this cash cow.
 
Bank serviceability and your "cash flow/ serviceability" is completely 2 different matter...the bank will still take in 10% gross FMV and discount by 80% and than use a serviceability interest rate of 8% --- yes you might be able to service the loan...but it's not just about you lol - it's about your "future buyer" or the general market...it limits OTHER ppl from buying.



Not everyone has 250k :) or wants to use that much cash on a regional town purchase. As mentioned it comes back to your future buyer/market.

Great cash flow, but capital growth not to sure and if*** hits the fan, how fast can you off load this cash cow.

Thanks Mick.

Can you pls explain the bolded part? What do you mean they will discount by 80%? In my mind if a property is strongly cash flow positive, in this case returns of 12 or so %, then surely it stands on its own?

I agree in terms of resale and capital growth, just how high can it go, certainly seems expensive. Im just looking at it from the POV that if it can put say $70k in my pocket per year for the next 2-3 years with a fixed long term lease, that puts me $210k in front. Even if property drops 20% i can still break even. If it drops 30% i take a 100k hit. If it stays at similar price levels i then am way ahead.

In the meantime my servicability for other deals improves dramatically does it not?
 
sanj, its all hypothetical.

in the 47 years they've been looking to expand the town, there are no more than 12 bores to provide for reliable water....and they are at maximum capacity.

no water, no expansion.

the ONLY option is a desal plant on the other side of the inlet, but native title has been FIERCE.

boddo had the same prob which is why you and i were the last in.
 
The dynamic to be careful of is the effect of all the land releases. This has had an effect in Karratha with about 30% drop in rents, 20% drop in yields and about 10% in prices and beginning to in the two Hedlands.

Those two are regional centers with more than one industry to support them.

Onslow is gaining a name for itself because of the Wheatstone project and not much else.

I spent a few days up there about seven years ago and it is a town with little to speak of except a constant breeze off the water and humid.

I think you might do well to do a lot of research and thinking to make yourself happy. Onslow is like other centers but also it is not.
 
The dynamic to be careful of is the effect of all the land releases. This has had an effect in Karratha with about 30% drop in rents, 20% drop in yields and about 10% in prices and beginning to in the two Hedlands.

Those two are regional centers with more than one industry to support them.

Onslow is gaining a name for itself because of the Wheatstone project and not much else.

I spent a few days up there about seven years ago and it is a town with little to speak of except a constant breeze off the water and humid.

I think you might do well to do a lot of research and thinking to make yourself happy. Onslow is like other centers but also it is not.

Thanks, i certainly intend to do more research. I have also spoken to Landcorp as well as the agent who has been appointed by Landcorp to sell the new blocks when they are finally released. Ive also read some WAPC reports on Onslow.

I have seen what has happened in Karratha and naturally am nervous, however at the same time the Onslow land release is slower and significantly smaller from what i can see.

My motivation i guess is a bit of passive income/cashflow. At the moment im developing 7 units in Maylands, another 6 in Highgate and doing a land subdivision in Esperance. I will also soon have a small stake in a couple of other businesses. All the above should make good money but it is not regular monthly kind of income.


sanj, its all hypothetical.

in the 47 years they've been looking to expand the town, there are no more than 12 bores to provide for reliable water....and they are at maximum capacity.

no water, no expansion.

the ONLY option is a desal plant on the other side of the inlet, but native title has been FIERCE.

boddo had the same prob which is why you and i were the last in.


they must have worked something out cos Landcorp certainly does have something on the way
 
It's quite handy to have positive cash flow properties to offset the negative cash flow from development. But I guess in end of the day, you can only make this type of investment if the cash flow is going to be sustainable...
 
Does Onslow stand a better chance of maintaining such yields and prices?

I don't know anything about anything, but aren't Chevron building a giant camp to house all staff for the Wheatstone project? Will camp completion make rental returns drop dramatically?
 
I don't know anything about anything, but aren't Chevron building a giant camp to house all staff for the Wheatstone project? Will camp completion make rental returns drop dramatically?

Yep, 5000 man camp at the ANSIA. But Chevron aren't letting anyone other than their own contractors stay there. The contractors required for all the new development in town, including but not limited to LandCorps stage 1 release, need to stay somewhere.. Accommodation is almost non existent atm, evidenced by the Beadon Bay Hotel charging $200+ pn. I'd certainly prefer a donga over the hotel!

Interesting to note is that the hotel/pub is for sale. Why would you sell a pub with 16 hotel rooms when the town is supposedly about to boom?
 
I'm looking to buy karratha whilst it is cheap

So what is cheap??? Not trying to be smart, just curious, I had a quick look yesterday and still need big $ to jump in. Also, lots of properties for sale/rent?? Would make me a little nervous.
 
the place I sold a couple of years ago for near on $900k can now be had for mid 7s. knowing replacement cost of the property and the strength and diversity of that market I would have no problems going in at that. It's not a whole lot of equity and as IRs are so low the +ve can reduce your exposure very quickly.
 
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