Perth - madness.
- Thread starter Kingbrown
- Start date
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Dear Pete,
1. On the optimistic side and best case basis, I see the Perth property market as merely taking a breather, at this point in time, for 1-2 years period before resuming its high growth rate in the medium-long term basis, if indeed the underlying market fundementals are as strong as you said, with the resource boom and increasing nett immigration into WA continuing over the next few years.
2. On the pessimistic side and worst case basis, I see the Perth property market has having peaked and with the recent change in market sentiments, sudden increase in property listings, potential 50% increase in new building approvals, housing/land affordability related issues etc, as signalling the beginning stage of the end of the present property boom in Perth, I still expect the Perth median house price to increase a bit more before petering off and then remaining stagnant for a number of years before resuming its long term average growth. There might also be some immediate short-term market correction of about 5%-8% decline in the Perth median house price over the next few years before it levels off into its subsequent house price stagnancy period.
3. Generally speaking, I do not see any potential market crash for the Perth property market over the immediate horizon at this point in time, all things being equal;-, though I do seriously expect some sort of major market/industry correction over in China, immediately after the post-2008 Beijing Olympic Games.
4. For your kind update and further comments/discussion, please.
5. Thank you.
regards,
Kenneth KOH
From all the comments, and news reports, I become more and more firmly believing that the Perth will have 5 years to run -- 15-20% a year to reach its peak. To pass Sydney is not an issue.
Affordability is not an issue because people get jobs and well paid. Now workers get $60-70k easily, but 7 years ago I as a qualified engineer only got $45k a year. For people who have already had house, they have equity ro buy a good one; for first home buyer (assuming both husband and wife work), they could easily get $100k income, so what is the affordability problem?
You got to remember that there will always be people can not afford a house --- for example my tenants, does not matter how low the price is. This is the reality.
People become more educated in managing their finance and I have not heard any foreclosure so far.
Economy, unemployment --- a key to the market. That is the game of supply and demand.
For those liking talking down, you can watch how the Perth price go? You probably miss another boom.
I have not bought anything since 12 months ago. Now I am starting researching new properties.
Affordability is not an issue because people get jobs and well paid. Now workers get $60-70k easily, but 7 years ago I as a qualified engineer only got $45k a year. For people who have already had house, they have equity ro buy a good one; for first home buyer (assuming both husband and wife work), they could easily get $100k income, so what is the affordability problem?
You got to remember that there will always be people can not afford a house --- for example my tenants, does not matter how low the price is. This is the reality.
People become more educated in managing their finance and I have not heard any foreclosure so far.
Economy, unemployment --- a key to the market. That is the game of supply and demand.
For those liking talking down, you can watch how the Perth price go? You probably miss another boom.
I have not bought anything since 12 months ago. Now I am starting researching new properties.
Analyst, do you think there is a relationship between wages and property prices? i.e. in the medium to long term, property demand is made up of new migrants and pay increases?
Even assuming affordability is acceptable now, do you believe that wages will rise 75% to support a 15% a year increase for 5 years? Will the RBA just let wages go up like that without dampening it with interest rate decreases?
I just wonder what people in Sydney were thinking in 2003/4. The funny thing is that now, everyone says the market in Sydney peaked in 2003, when in fact the median price peaked in 2004. Everything that you said about Perth also applied (applies?) to Sydney. What happened to Sydney?
Buying at 3% yields, with a bunch of investors who expect high double digit returns a year just doesn't make sense to me. If all Perth propreties were bought by owner occupiers, I would have more confidence in it. With the number of investors currently in Perth.........
Alex
Even assuming affordability is acceptable now, do you believe that wages will rise 75% to support a 15% a year increase for 5 years? Will the RBA just let wages go up like that without dampening it with interest rate decreases?
I just wonder what people in Sydney were thinking in 2003/4. The funny thing is that now, everyone says the market in Sydney peaked in 2003, when in fact the median price peaked in 2004. Everything that you said about Perth also applied (applies?) to Sydney. What happened to Sydney?
Buying at 3% yields, with a bunch of investors who expect high double digit returns a year just doesn't make sense to me. If all Perth propreties were bought by owner occupiers, I would have more confidence in it. With the number of investors currently in Perth.........
Alex
I recently had a rather interesting chat with my old man, who also is a real estate salesman in perth (guess where I got it from!).
A recent summary of my old man's thoughts was that the Perth real estate market is trying to correct (hence market sentiment), but there is a large pent up demand that is still unsatisified in Perth, therefore buyers are looking for well priced property (read - anything less than 10% - 20% above recent sales evidence).
Personally I am well on the fence, half thinking the Perth market will soon fall as I am seeing less and less people at my Home Opens and getting less inquiry for my properties coming onto the market (internet hits, phone inquiries, home open attendences) and the other butt check on that fence is thinking the boom will roll on as the fundamentals of population growth and economy strength are better than any state in Australia coupled with supply issues as the WA's state government has well publised red tape issues with new land releases, restricting land suplly putting pressure on prices across the board.
So I will go with, not the butt check, but th erecent record of I having sold within the first week or at the first home open 4 of my last 5 listings (5th property took 2 home opens and fair deal of situation smarts and real estate agent skills/pressure - I am sorry strechy it took so long - but $360K really ain't bad for your villa).
Given that my last two weeks (yup, I am on a big sales roll) and 5 listings are extremely different in price, location and market type, I am wondering if I am just underpricing my stock given market sentiment, or if the Perth market is showing good signs of strength/rebound from all this press negative market sentiment.
Only time will tell, but I am buying some more development sites, just in case, and because I think I have bought well under market.
my 2 cents
paulie
A recent summary of my old man's thoughts was that the Perth real estate market is trying to correct (hence market sentiment), but there is a large pent up demand that is still unsatisified in Perth, therefore buyers are looking for well priced property (read - anything less than 10% - 20% above recent sales evidence).
Personally I am well on the fence, half thinking the Perth market will soon fall as I am seeing less and less people at my Home Opens and getting less inquiry for my properties coming onto the market (internet hits, phone inquiries, home open attendences) and the other butt check on that fence is thinking the boom will roll on as the fundamentals of population growth and economy strength are better than any state in Australia coupled with supply issues as the WA's state government has well publised red tape issues with new land releases, restricting land suplly putting pressure on prices across the board.
So I will go with, not the butt check, but th erecent record of I having sold within the first week or at the first home open 4 of my last 5 listings (5th property took 2 home opens and fair deal of situation smarts and real estate agent skills/pressure - I am sorry strechy it took so long - but $360K really ain't bad for your villa).
Given that my last two weeks (yup, I am on a big sales roll) and 5 listings are extremely different in price, location and market type, I am wondering if I am just underpricing my stock given market sentiment, or if the Perth market is showing good signs of strength/rebound from all this press negative market sentiment.
Only time will tell, but I am buying some more development sites, just in case, and because I think I have bought well under market.
my 2 cents
paulie
Hmmmmmmmm?
Sounds like you just sold your investments in Perth, Kenneth, did you?
Bully
Sounds like you just sold your investments in Perth, Kenneth, did you?
Bully
I'd have to agree with that...
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Dear Bulldog,
1.Yes, we did.
2. We have sold off 4 of our houses in July and Sep 2006 period. We are happy with the sale prices achieved as they are all above our asking price and the prevailing market valuation values then.
3. We are also looking forward to building another double-storey house at Lot 2012, 26 Eldon Street, Shoalwater WA 6169 in the same Anchorage Estate at the end of this year, now that building industry is no longer operating at its full capacity, having eased off recently.
4. In the mean-time, we are also beginning to look East into the Sydney and Melbourne property markets and to start consider investing there too.
5. For your kind update, please.
6. Thank you.
regards,
Kenneth KOH
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Dear Alex,
1. You have highlighted an interesting phenomenon regarding "market peaking"
which I will like to share my personal views and to hear the other members' feedback and comments on them, so as to mutually learn from one another and to further enhance my own self-education process, please.
2. If we refer to Kieran Trass's Book, "Grow Rich with Property Cycle," the median house price will actually peak at the Beginning Stage of the Slump Phase (about 1 o-clock position), and not actually at the boom "peaK" (12 o-clock position) or the end stage of the Property Boom Phase.
3. I agree with Kieran Trass on his observation, which you have similarly observed for the last boom for the Sydney Property Market in 2003 and 2004 period.
4. We must always bear in mind that, as suggested by Michael Yardney, there is a time lag between the actual reality first occurring on the ground vis-a-vis the public perception/awareness of the actual event occurring and this time lag may vary (6 months-18 months) accordingly, averaging about 9 months time lag.
5. I am not sure if Kieran Trass did or did not discuss about this time lag factor, in his book.
6. If we refer to the last Sydney boom, I would say the Sydney market as having peaked in December 2003, after the RBA has introduced 2 interest rate increase successively in October and November 2003 respectively.
7. Despite this, the Sydney median house price has further increased till Sep/Oct(-Dec?) 2004 period before petering off and starting to decline in late 2004/early 2005.
8. The main reason why the Sydney median house price has continued to move forward after the market peaks, is because of the accumulated market momentuem gained as a result of the ongoing hot market fever and herd instincts pushing itself forward automatically and as well as a result of the time lag in the public perception of the market peak occurring.
9. Hence the different timings as to when the property market actually peaks and the highest median house price is achieved.
10. It is also my own personal belief based on my past market observations that at the first occurence of the market peak, ( where the highest annual price increase growth rate is reported, when the market fever is "hottest" with lowest minimum property listing available for sale and FEAR(False Expectations Appearing Real) is most intensely felt by the panicking buyers,) astute vendors are normally able to sell their properties in excess of some 10%-20% above their actual true market value for their respective properties.
11. This is because of the hot market fever, active market speculation as well as the fear factor feeding itself onto the panicky buyers fearing that they are going to miss out on the ongoing boom in a Sellers' market if they fail to get into the market at the very last minute before the property boom ends.
12. For your kind update and further comments/discussion, please.
13. Thank you.
regards,
Kenneth KOH
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Dear Peter,
1. I speak/share from my own actual real-life investing experiences.
2. The rental for my ex-house at Lot 1664, 15 FitzGibbon Road Rockingham WA 6168 in the Anchorage Estate has just been increased to $295 per week in September 2006 period.
3. It was previously rented out for $280 per week in August 2004 period, thus achieving a 5.4% rent increase over the last 12 months period.
4. The a/m house was last valued for A$450,000 in June 2006 period.
5. For your kind update, please.
6. Thank you.
Cheers,
Kenneth KOH
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&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&I wonder if the present strong Perth market is a little different from a typical booming market because of the genuine, strong & unsated demand for housing?
Though, I guess, even in such a situation, the phenomenon you (Ken) are describing would be expected to occur.
Dear Peter,
1. It depends on how strong you personally want to believe in the Property Cycle Theory.
2. Proponents of the Property Cycle Theory believes that the Perth Property Boom is no different from the last Sydney Property Boom. This is irrespective of the present ongoing resource boom. At best, they would acknowledge that the Perth Property Boom, is a "Super-Boom" but is still in itself Cyclical and will thus have to go into a correction phase somehow.
3. Critics of the Property Cycle Theory would argue that this unexpected once in 20 years strong resource boom occurrence, will make the Property Property Market Boom "abnormal" much unlike the usual property market boom. They contend that "this is different now this time round for the Perth Property Boom".
4. I personally believe in the Property Cycle Theory and have thus acted accordingly to cash out on most of my existing Perth property portfolio.
5. While I remain open-minded about how the Perth property market will eventually evolve out at this point in time, my own intuitive/internal feel is that the resource boom may at best lengthen the boom and delay the ending of the Perth property boom, which I believe that it has already done so, to date.
6. However, I also believe that being cyclical in nature, the Perth property market must somehow undergo some correction for the Property Cycle Theory to work in real life, in the near future.
7. Furthermore, I do not personally think that the Perth property price can effectively defy the Laws of Gravity, all things being equal.
8. For your kind update and further comments/discussion, please.
9. Perhaps, the other more experienced members like Michael Yardney, Kieran Trass, Aceyducey, See-Change, Peter Spann etc, care to further comment on this discussion for our further self-education, please.
10.Thank you.
Cheers,
Kenneth KOH
Dear All,
1. I will like to further suggest that despite the recent change in the market sentiments, we will continue to see the Perth median house price increasing further in the near future.
2. This is because the higher end of the Perth property market will continue to grow even though, if there is actually a slowing down of the lower-priced property market segment at this point in time.
3. The Perth median house price will likely to increase further, irrespective of whether there will going to be a third interest rate increase in November 2006. This is becuase these prestige/high end property market segment is not so sensitive to interest rate movement at all, much unlike the rest of the Perth property market.
4. Thus, with more house sales expected to be done at the higher price level at the higher end of the Perth property market segment/prestige property sector, statistically speaking, the Perth median house price will automatically grow further, all things being equal.
5. However, it does not neccessarily mean that our actual house true market value has increased correspondingly by the same amount/rate as is reported for the Perth median priuce increase.
6. In fact, we are beginning to see the vendors' asking price for houses in the Anchorage Estate, to fall by some A$10,000-$20,000 recently, to more realistic asking price levels.
7. Thus, an increase in the Perth median house price does not automatically nor neccessarily confirm that the Perth Property market boom is still continuing at this point in time.
8. Please also bear in mind the time lag factor for the public awareness of the change in market direction/status.
9. At 32%-40% investors' house sale activity occuring at this abnormally high levels, the Perth property market can go either way in the immediate short term basis depending on these investors' perception and their collective decisions.
10. However, over the medium-long term basis, the Perth property market must definitely correct itself to the actual required level where its market house pricing is truly supportable by its underlying basic market fundamentals, irespective of the investors' collective decisions.
11. The more, the immediate short term gains/growth achieved, will mean eventually more pains and a longer period towards effective house price recovery subsequently for the Perth property market, all things being equal.
12. For your kind update and further comments/discussion, please.
13. Thank you.
regards,
Kenneth KOH
1. I will like to further suggest that despite the recent change in the market sentiments, we will continue to see the Perth median house price increasing further in the near future.
2. This is because the higher end of the Perth property market will continue to grow even though, if there is actually a slowing down of the lower-priced property market segment at this point in time.
3. The Perth median house price will likely to increase further, irrespective of whether there will going to be a third interest rate increase in November 2006. This is becuase these prestige/high end property market segment is not so sensitive to interest rate movement at all, much unlike the rest of the Perth property market.
4. Thus, with more house sales expected to be done at the higher price level at the higher end of the Perth property market segment/prestige property sector, statistically speaking, the Perth median house price will automatically grow further, all things being equal.
5. However, it does not neccessarily mean that our actual house true market value has increased correspondingly by the same amount/rate as is reported for the Perth median priuce increase.
6. In fact, we are beginning to see the vendors' asking price for houses in the Anchorage Estate, to fall by some A$10,000-$20,000 recently, to more realistic asking price levels.
7. Thus, an increase in the Perth median house price does not automatically nor neccessarily confirm that the Perth Property market boom is still continuing at this point in time.
8. Please also bear in mind the time lag factor for the public awareness of the change in market direction/status.
9. At 32%-40% investors' house sale activity occuring at this abnormally high levels, the Perth property market can go either way in the immediate short term basis depending on these investors' perception and their collective decisions.
10. However, over the medium-long term basis, the Perth property market must definitely correct itself to the actual required level where its market house pricing is truly supportable by its underlying basic market fundamentals, irespective of the investors' collective decisions.
11. The more, the immediate short term gains/growth achieved, will mean eventually more pains and a longer period towards effective house price recovery subsequently for the Perth property market, all things being equal.
12. For your kind update and further comments/discussion, please.
13. Thank you.
regards,
Kenneth KOH
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40% investors sounds extremely high - where does this figure come from?
If true, this is obviously on the increase, I suppose there's a real mix of investor types out there too, i.e I would assume that there's a large portion of home owners who are using new found equity to invest in property, possible a little naive and not thinking about the current state of the market but just see investing in property as a good thing to do. This mentality will only be perpetuated if prices continue to go up, and with such a high level of investors already, it could really give a false impression of the market, if not already.
If vacancy rates stay low this is certainly not a problem, it's only until there's an oversupply when prices will start to come down or at best plateau, and with the land shortage and govt bottleneck in releasing it, this may not happen while the mining industry continues to boom.
If true, this is obviously on the increase, I suppose there's a real mix of investor types out there too, i.e I would assume that there's a large portion of home owners who are using new found equity to invest in property, possible a little naive and not thinking about the current state of the market but just see investing in property as a good thing to do. This mentality will only be perpetuated if prices continue to go up, and with such a high level of investors already, it could really give a false impression of the market, if not already.
If vacancy rates stay low this is certainly not a problem, it's only until there's an oversupply when prices will start to come down or at best plateau, and with the land shortage and govt bottleneck in releasing it, this may not happen while the mining industry continues to boom.
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Dear Gooram,
1. If the housing demand for the Perth property market has always been below 13,000 units per year saved for the recent increased immigration rate (19,000 people according to Redwing) and new housing apporval at 45%-50% increase at 19,000 new housing approvals, it is a matter of time when the market over-supply will materialise in the near future, all things being equal.
2. REIWA.com officially reported that investors make up 32% of the total house sale as at 30th June 2006. I think someone was mentioning the 40% investors figure, to probably refers to the preliminary data for the Sep 2006 quarter.
3. On the ground, the building industry is no longer operating at its full capacity presently, having eased off signficantly over the last 3 months, as a result of land shortage and lack of new building jobs at prevailing prices.
4. Many building companies are now resorting to the use of marketing gimmicks like giving away freebies like plasma TV, aircon unit etc as well as a shorter 6- 7 months construction time to build a new house in order to attract new customers and secure their new building jobs recently.
5. Likewise, the number of new property listings available suddenly has shot up from 3200 units in April 2006 to 8,800 new listings at the end of Sep 2006 and effective sales to listing ratio dropping to 52% from its previous 100% a few months ago.
6. To me, the ground market sentiments for the Perth property market has already started to turn, following the recent market slow down.
7. On the global economics front, many international hedge funds are now out of the oil, gold and the other commodity related trading market, Consequently, I will assume that the commodity market has also peaked too, as suggested by Peter Costello.
8. Likewise, with local mining companies starting to increase its production capacity recently and with China expected to significantly cool down its building programmes after the 2008 Beijing Olympic Games, it is also a matter of time when we can also expect the mining sector to significantly cool down or/and even to be found in an over-supply situation in due course some time during 2008-2009 time frame.
9. Consequently, I am not as optmistic as you are, regarding the future performance of the Perth property market in the immediate near future and medium term basis.
10. For your kind update and further comments/discussion, please.
11. Thank you.
Cheers,
Kenneth KOH
Keep in mind about 30% of all properties are rentals, last I checked it was like 27% of all properties.
So during the slow times you may only get 10-20% of buyers being investors, so during the boom times you need the 40% to get the average up to the 30% norm.
Also worth keeping in mind the higher prices get, the more people are forced to rent because they can’t afford to buy, or think they can't afford to.
So investors driving prices up create their own tenants.
Also, of note, speaking to someone in the know about the resources industry and Job/Wage growth in WA. It is more likely than not that the Perth median house prices will pass Sydney.
It is also likely that the demand for resources will make Australia one of the richest nations in the world, similar in nature to the rich Arab countries that just pump oil from the ground. WA and Perth will be at the heart of this and hundreds of thousands of people will move to WA to make more money than they ever imagined.
It was a pretty eye opening experience hearing all this information; it was coming from someone who is one of the most respected funds managers in the world.
Interesting information anways. I see a lot of people hitting the panic button now that the market is taking a breather, but it sounds to me like things are a long long way from over.
He referred to it as a “super cycle”, something we may only see one in every 50 to 100 years, and we are just at the beginning. Helps explain why everyone is so confused and asking “is the boom over”, “will it last forever”, “is it different this time”
I assume this it the same way people felt at the time of the industrial revolution.
Cumown
So during the slow times you may only get 10-20% of buyers being investors, so during the boom times you need the 40% to get the average up to the 30% norm.
Also worth keeping in mind the higher prices get, the more people are forced to rent because they can’t afford to buy, or think they can't afford to.
So investors driving prices up create their own tenants.
Also, of note, speaking to someone in the know about the resources industry and Job/Wage growth in WA. It is more likely than not that the Perth median house prices will pass Sydney.
It is also likely that the demand for resources will make Australia one of the richest nations in the world, similar in nature to the rich Arab countries that just pump oil from the ground. WA and Perth will be at the heart of this and hundreds of thousands of people will move to WA to make more money than they ever imagined.
It was a pretty eye opening experience hearing all this information; it was coming from someone who is one of the most respected funds managers in the world.
Interesting information anways. I see a lot of people hitting the panic button now that the market is taking a breather, but it sounds to me like things are a long long way from over.
He referred to it as a “super cycle”, something we may only see one in every 50 to 100 years, and we are just at the beginning. Helps explain why everyone is so confused and asking “is the boom over”, “will it last forever”, “is it different this time”
I assume this it the same way people felt at the time of the industrial revolution.
Cumown
