Perth - madness.

[Dazz]

900,500 is a high price - but this is for a house on the Swan river, 8km from CBD. Not saying the Perth market isnt over-hyped, but its not an outlandish price IMHO.

Exactly. My Uncle owned it for 20 years and was forced to sell to his lawyer neighbour (under the threat of legal action) for 380K back in 1998.

So, if it went for 900.5K, the lawyer got 11.38% p.a. compounded over the last 8 years.

Quite acceptable I suppose as a capital growth rate, but certainly nothing outlandish or spectacular.

 

[TomL]

Hmmm ... 11% compounded not spectacular eh ...

What about if the neighbour only had to put in 72K to secure the property.

In terms of equity (assuming bought for 20% deposit), ignoring costs and income

72K to 612K in 8 years.

Whats that compounded? Roughly 30% IRR assuming 0 net cashflow inbetween. (it doesnt make much difference to the irr btw if its -ve or +ve geared when theres this much cg)

(on 10% deposit it works out at about 41%)
(on 5% deposit = 54%)

Please by all means, correct me if i'm wrong ... Those numbers look pretty good to me. Got any more of those deals handy? I'll buy them all!!


Hence, its the LEVERAGE that makes you rich, not the rate at which the property itself is appreciating.

T.

 

[Kennethkohsg]

Dear All,

1. At the Anchorage Estate in Rockingham-Shoalwater coastal suburbs, the average 5 years annual growth rate for properties there, is more than 17.9%.

2. I first bought 2 pieces of the vacant land for about $75,000 in this new estate in July 2003 and they have since risen more than A$180,000 by end of 2005, achieving more than 100% increase over a relatively short period of 2.5 years.

3. The Perth property market is definitely very hot at the present moment as many properties are sold even before they are being advertised.

4. For your kind update, please.

5. Thank you.


regards,
Kenneth KOH

 

[Kennethkohsg]

Hmmm ... 11% compounded not spectacular eh ...

What about if the neighbour only had to put in 72K to secure the property.

In terms of equity (assuming bought for 20% deposit), ignoring costs and income

72K to 612K in 8 years.

Whats that compounded? Roughly 30% IRR assuming 0 net cashflow inbetween. (it doesnt make much difference to the irr btw if its -ve or +ve geared when theres this much cg)

(on 10% deposit it works out at about 41%)
(on 5% deposit = 54%)

Please by all means, correct me if i'm wrong ... Those numbers look pretty good to me. Got any more of those deals handy? I'll buy them all!!


Hence, its the LEVERAGE that makes you rich, not the rate at which the property itself is appreciating.

T.

*****************************************************
Dear TomL,

1. I can agree with you about the leverage in the wealth creation process to a certain extent, having bought another 3 pieces of vacant lands at the same Anchorage Estate
(and having completed developing a total 4 houses there to date) with no additional deposit on my part.

2. However, I find that it is more important to be safe and prudent in our own property investing and the wealth creation process so that we can remain in the game indefinitely.

3. Trying to speed up our own wealth creation process through continual leverage can at times, put our entire property portofolio at risk unneccessarily when we unknowingly "over-gear" it or/and when some unforseen things should happen one of the these days and whenour own cash reserves becomes insufficient and found wanting..

4. For your kind update, please.

5. Thank you.


regards,
Kenneth KOH

 

[markpatric]

*****************************************************
Dear TomL,

1. I can agree with you about the leverage in the wealth creation process to a certain extent, having bought another 3 pieces of vacant lands at the same Anchorage Estate
(and having completed developing a total 4 houses there to date) with no additional deposit on my part.

2. However, I find that it is more important to be safe and prudent in our own property investing and the wealth creation process so that we can remain in the game indefinitely.

3. Trying to speed up our own wealth creation process through continual leverage can at times, put our entire property portofolio at risk unneccessarily when we unknowingly "over-gear" it or/and when some unforseen things should happen one of the these days and whenour own cash reserves becomes insufficient and found wanting..

4. For your kind update, please.

5. Thank you.


regards,
Kenneth KOH

Absolutely spot on!.

 

[flatout]

I also noticed over the last 2/3 weeks more and more properties in the Mandurah area are now going to auction.
If l was selling l think l would definately try an auction in this market.

I've noticed the same trend on median price houses in Mandurah. Not a very common selling method here usually so will be interesting to see how it goes. Place in our suburb in Mandurah being auctioned inside the next couple of weeks unless sold prior apparently. I'll definitely drop in for a look see. Incidently, I'm also hearing stories about agents asking for above asking price offers although most REA I talk to are rather scathing of this tactic. I know selling agents are supposed to do the best by their vendors but I think they're just scare-mongering for a higher price from buyers who are frightened of missing out. To quote one REA recently "I could sell a dog kennel at the moment".

Flatout

 

[TomL]

*****************************************************
Dear TomL,

1. I can agree with you about the leverage in the wealth creation process to a certain extent, having bought another 3 pieces of vacant lands at the same Anchorage Estate
(and having completed developing a total 4 houses there to date) with no additional deposit on my part.

2. However, I find that it is more important to be safe and prudent in our own property investing and the wealth creation process so that we can remain in the game indefinitely.

3. Trying to speed up our own wealth creation process through continual leverage can at times, put our entire property portofolio at risk unneccessarily when we unknowingly "over-gear" it or/and when some unforseen things should happen one of the these days and whenour own cash reserves becomes insufficient and found wanting..

4. For your kind update, please.

5. Thank you.


regards,
Kenneth KOH

1. yep - good tactic in a rising market, using leverage nicely.

2. I completely agree with you re being safe and prudent. I wouldnt advocate any other way - and that is one of the main appeals of RE investing... predictability.

3. Spot on - gotta have a cash reserve or equivalent on hand to see you through unforseen events.

Many of my posts have said exactly the same things.. we both think the same, and I suspect many other people have formed the same opinions..

T.

 

[wealthyjay]

My Wife and I spent the best part of the last 6 months trying to buy a new PPOR in the Perth area. We were looking for within 10K of CBD. Selling our existing property in Rivervale was hardly the problem, we got a very good offer within 2 weeks of it going on the market.

However, it is a very apt description to describe the market as madness at the moment. Good and well priced properties are being bought before the first home open etc The only slight hiccup is when the prop is clearly overpriced, but this only leads to a pause since emotions lead to selling at asking price anyway. The market is clearly at a peak, and if you recall any of well worn wisdom of the mania of crowds alarm bells should be ringing.

I would expect property investment in the Perth market to be a short term proposition as the future is not certain when a market is so hot. Would I be right?

Anyway, we have decided to go back to our original thought and knock down the little fibro house and build on the block in Rivervale. Bugger paying someone elses overpriced idea of home value in a clearly peaking sellers market, and may as well develop my own value.

 

[grubar30]

.

EVERY property I have called about / visited lately is SELLING BEFORE the first home open (that is, sight unseen apart from internet photos or other knowledge). 5 apartments and one small block of land I have looked at have gone this way.

Michael Yardney said it best

"By the time the main crowd are buying property investments, the main hike in prices has already occurred."


I'm enthralled with this whole Perth boom - its a mirror image of what happened to the East Coast cities back in 2001-2003, when prices skyrocketed due to the general publics hysteria, compulsion and desperation....

18 months later, and there's a lot of people currently sitting on negative equity....and a lot of regret

George

 

[Pete]

George,

IMO it is wrong to assume the growth phase in Perth is a mirror image of the eastern states a few years ago. There are different drivers here.

There are signs of boom time frenzy, but there is underlying demand - for example for places to live. The population is growing strongly in a booming economy. For example, state economy growing at ~8% per annum.

Many WA forumites have speculated on this boom in recent months - there are many posts on the subject.

I've been hearing comments for three years now that the Perth price growth is overextended and a retreat is imminent. Since then prices have risen ~50%.

The only regret seems to be those who've missed out. I can't see it being too different in another 18 months. Even if the growth eases or stops - heck, even if there is a retreat from current prices - I think most people will still be way ahead.

All the evidence I see is for continued growth. Say, 15 to 20% over the next 18 months.

Have you evidence to the contrary?

regards,

 

[tonyd]

To quote one REA recently "I could sell a dog kennel at the moment".

I'm thinking of selling mine.
In need of a minor reno.
Growth buyers may be put off by small land-value fraction and limited depreciation benefits.
CFP investors will love the yield.
Prospective buyers should request vacant possession as current tenant could be difficult to remove.

Tony

 

[Pete]

Tony,

Suggest you don't sell for at least $10,000 over asking price in the current market.

regards,

 

[stretchy]

George,

All the evidence I see is for continued growth. Say, 15 to 20% over the next 18 months.

Have you evidence to the contrary?

http://www.anz.com.au/Business/info_centre/economic_commentary/ResidentialSnapshotMarch2006.pdf

Read page 2 - they mention a looming oversupply problem (but are still cautiously optimistic about WA due to commodities).

I dont claim to agree or disagree with their comments (sounds pretty strange talking about oversupply when all we hear about is the severe housing/rental shortage) but their opinion should definately be noted. Its all about supply and demand...

 

[see_change]

IMO it is wrong to assume the growth phase in Perth is a mirror image of the eastern states a few years ago. There are different drivers here.

,

Pete , there's always different drivers and I havn't been following Perth closely , but I get worried when people say things are different this time.....

See Change

 

[redwing]

Interestingly Rixter and Cheeks (WA Investors) have posted that they are looking elsewhere for IP's; Possibly there is better value elsewhere with the WA market at its current high..

 

[Cheeks]

Yes thats right I'm nolonger looking at WA as an option.

I'm considering Melboure and Sydney for my next few purchases. I'd looked at Brisbane but thought the states economies were influenced by similar forces to WA so I decided that wasn't for me.

So what I think I'll actually try and do is purchase 2 in Melbourne and one in Sydney this year.

However I will NOT be selling the properties I currently hold in WA.

 

[Ausprop]

just keep an eye on the multiple of earnings ratio and an eye on the bigger picture. The first still seems low and broadly the commodities boom is still rolling, booming loal economy, strong migration, no signs of a rate rise, inability to supply product and rising replacement costs. if there are clouds i am still squinting to see them, tho like I every farmer I can't wait for the rain. There is no doubt we are having a very strong run over the last couple of weeks and prices seem to be going up by the day. I do hold concerns that these price rises may slow down the growth of the city as new arrivals may decide it is just too expensive.

when asking if it is different this time, what time are we comparing too? The early 70s or the late 80s?

 

[Rixter]

Yes, I stopped purchasing in Perth prior to the current boom so the Perth property i'm holding has and still is experiencing fantastic growth - so much so I will have more than enough equity in my Perth properties alone for 2 more deposits in Brisbane later this year.

Ive been purchasing property in Brisbane since 2003 for two main reasons - Market diversification and tax minimisation.

Why Brisbane/SE Qld? Because thats where current /future market demand is with the population increase from the southern states, and as you all know when demand exceeds supply up go the prices.

THis also includes rental demand thus better yields.

 

[Pete]

Stretchy, looming oversupply. Certainly to be expected in a cyclical industry.

See Change, different this time. I don't believe in the "different this time" too. I believe in market cycles. I believe Perth market is not a mirror image of Sydney market. I believe the Perth market will go up some more before it retreats. I speculate it will be flat-ish for an extended period after that. Nothing new there!

I also am not buying into the current WA market. This is a consolidation phase - "wait & see".

Most recent purchase was mid 2004. Brisbane / SE Qld is just as likely as WA to be the next place I buy.

I bought my first IP in late 1987. It pretty much doubled in value within about three months. Though when I sold it about ten years later it was for about 50% more than I paid for it. All before I learnt about property investing and started again in 2001. This time things are different - me!

regards,

 

[Dazz]

I think this climate here in Perth is an excellent time to buy....of course it depends on what you are buying.

Currently looking at some of the "gotta flog off" stock that the Receivers and Managers have been lumped with after the Westpoint debacle. There is some nice properties there....it appears there must have been alot of fiddling going on, 'cos the properties themselves are fundamentally excellent. I feel really bad about picking one or two of those up....

We've been approached by 3 interested parties wishing to lease prime properties...they don't have the funds to purchase what they want, and the Bank is simply waiting for a committed Lessee to commit, so it's a match made in heaven.

Agreed, we wouldn't touch Perth houses at the moment either. There is one for sale a couple of doors down in our street. The gross rental yield is 0.9%. After normal outgoings, (council rates / water rates / insurance and land tax) the nett rent yield is -0.4%....what a bargain !!! To my recollection, that's the first time I've ever seen a property be negatively geared, even if it was fully rented all year and you paid 100% cash for it.