Perth - madness.

[alexlee]

The supercycle is still a CYCLE. One that I agree with, by the way. If you tell me 'buy a property in Perth now and the price will go up in 20 years' I would agree with you. Doesn't mean all hell night not break loose in the next couple of years, before it goes back up, and that I would make better gains by buying later. I believe if you buy in Sydney NOW you'd still make money in 20 years. The question is, will you do better by waiting another year or two?

The supercycle still includes corrections. The Japanese boom, dawn of the industrial age, etc weren't smooth. There were nasty corrections, though overall the trend is up. The question we should ask is, assuming there is an upward long term trend as a result of the supercycle, at this stage are we above or below it? If above, we might see corrections before it trends up again.

Looking at long-term growth rates of property, a particular year's growth will be below, at or above the long term trend. Therefore, if you buy at times when growth is below the long term trend (especially if it's negative) you will do better than if you bought when growth is above the long term trend, because it's likely that future growth rates will increase. Similarly, buying just after a period of above average growth increases the possibility that future growth will be lower as growth trends back to mean.

Even if you'd bought Sydney in 1990, you would be making money even now, but you would do even better had you bought in the mid 90's.

In the case of Perth, clearly property is going up above a long term sustainable growth rate. If investors are buying in expecting that growth rate to continue, then they are going to sell when growth falls back towards its long term trend.

The supercycle just tilts the long term growth slope upwards. It doesn't mean the market won't overshoot upwards or downwards.
Alex

 

[Keen]

I have heard one economic company state Perth will have 20% growth over the next 12 mths, whilst another stated 3% for the year.

I spoke to a Bunbury REA today. He says that demand for established houses in the area have dropped off so much that REA are probably spending more time in Cafe shops! And why was he ringing me after having last spoken to me in Jan 2004 .... to get try get my business.

This must tell you guys something. This is fact, this is now. I beleive (gut feeling, guestimate) we will have a 3 to 5% next quarter and then a flat market.

But as my opening statement suggests - if the experts can be poles apart and not agree what chance do we have.

Regards

Keen

 

[redwing]

I received an e-mail from a REA today saying:

the market has changed.

From a sellers market- we are on the upturn to a buyers market!!!

January should see with it a market flooded with sellers, as we see those mortgaged to the eye-balls begin to wither and buyers will beat sellers down,sadly because sellers will be more “hungry” and there will be much to choose from in the market place.

Houses that recently sold in days- are selling now in four to six weeks,

Hmmmmm

Two WA Investors I know who have been in the Market for many years have cashed up thier properties and land in WA and look to use thier money when there are desperate sellers in the years to come..don't know if they are right or "on the money", because the Market has still been moving north even as they've been selling over the last 8-12 Months.

 

[sparky23]

I was told last week that my block in Yanchep bought for $152,000 (with $1500 rebate for going unconditional mind you!) would now be worth $275,000 - not a bad increase in 4-5 months.

Also it appears that The Yanchep display home I had an expression of interest in and last week knocked back for another deal may have sold at $608,000 as I no longer see it being advertised. It was on 8% leaseback and I went for a 10% leaseback here in NSW instead - better rent but was it the right move in the long term?

By the way if anyone agrees that it was there are 2 more of those opportunities so feel free to pm me!

Sparky

 

[Kennethkohsg]

I was told last week that my block in Yanchep bought for $152,000 (with $1500 rebate for going unconditional mind you!) would now be worth $275,000 - not a bad increase in 4-5 months.

Sparky

******************************
Dear Sparky23,

1. While I heard what you are saying, we need to be careful to differentiate if the new land price achieved is actually a completed "done deal" sale transaction or just a professional opinions.

2. I am presently in the process of uptending my loan for Lot 2012, 26 Eldon Street Shoalwater WA 6169 at the Anchorage Estate.

3. Initial bank valuation outcome given to me by La Trobe for this lakefront (500m2) land block was only $275,000 in early October 2006.

4. It was last purchased for $160,000 in Feb 2006 and last valued through La Trobe for $250,000 in June 2006, thereby enabling me to achieve the "Zero Deposit" status i.e all the monies used for purchasing this vacant land are effectively now the borrowed bank monies (OPM), with a nett/additional $17,500 actual cashflow back into my pocket already, having recovered back all my initial original investment capital.

5. If we do our own research, we will then find that REM RE Agency is already marketing the non-lakefront block in the anchorage Estate for as high as $349,000 while others are marketing some vacant lands there for $290,000.

6. Even a smaller non-lakefront block along Fisher Street has been known to be sold for as high as $279,000 in April 2006.

7. After providing some recent comparable sale data from my own field research to the La Trobe and its appointed valuer for a valuation review, they have now re-valued the same piece of lakefront land at Lot 2012 for $320,000, some A$45,000 higher, amidst the present rising albeit slower growth market environment.

8. Thus, Lot 2012 has effectively increased 100% and doubled in value from Feb 2006 to October 2006 period, as far as La Trobe and I are concerned.

9. Consequently, I am expected to receive another A$52,500 worth of additional cashflow/ bank monies borrowings funds from La Trobe in due course.

10. Moral of the story:

a. Professional opinions are now highly "subjective", given the conflicting market signals and different professional opinions. It can easily vary by some $45,000 even though the same Perth-based valuer is used/concerned for the same property/land.

b. Valuers rely only on actual completed sale transactions data to review their own valuation outcome, not based on other professionals' opinions.

c. While Perth property market is still growing, it is already showing signs of slowing down somewhat.

d. Despite the hot market fever cooling down, some vendors are still simply asking "ridiculous"/ "unrealistic" prices for their properties, in the existing slowing down Perth property market environment.

e. Actual house/land prices may actually not be as high as what we have been told by the other professionals. It is best that we do our own indpeendant research and collect the field data and used them accordingly when required.

11. For your kind update, please.

12. Thank you.

Cheers,
Kenneth KOH

 

[Ausprop]

traditional blocks in yanchep are now selling for over the $300k mark from the original developer. I too purchased one at $165k, yet to settle, and have seen about 100% growth in that time frame.

 

[sparky23]

Wow - it gets even better! Would that only be on the Lindsay Beach side, what about Harford Grove?


Sparky

 

[Ausprop]

yep that was the beach side - the price list is on here

http://www.capricornproject.com.au/for_sale/lots.shtml

 

[Kennethkohsg]

It is more likely than not that the Perth median house prices will pass Sydney.

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

****************************************
Dear Cumown,

1. According to your well-informed friend,

a. how long is the present resource Supercycle boom supposed to last?

b. when and where had the last few resource boom supercycles occured?

c. Based on past historical trend, what/who are its key drivers behind the supercycle boom?

d. why should Perth median overtake Sydney median house price when historically speaking, this has never the been the case before for the past few hundred years?

2. Looking forward to learning from you and your informed source, please for my own self-education.

3. Thank you.

Cheers,
Kenneth KOH

 

[kph]

traditional blocks in yanchep are now selling for over the $300k mark from the original developer. I too purchased one at $165k, yet to settle, and have seen about 100% growth in that time frame.

Are you saying that they are valued at over $300k at current market value ??

Happy days indeed !!

Bit weird as you have a building clause in the contract so that there will not be any resales to provide any market evidence.
So I guess you can only go on a comparative block in a later release, as a market indicator ??

Oh, and the stage 5 lots are smaller than the stage 1 and 2 lots, so on a m2 basis, we're even further in front?

kp

 

[Ausprop]

just to clarify this block situation... the price release in stage 5 had a couple going for $299k. the one that i looked at, lot 162, is a bit on the ordinary side... on a corner and an odd shape. this is strong evidence of value, despite the fact that it is a little meaningless as you can't sell them undeveloped, however it certainly supports resales in the $550-700k mark for the finished product. a display home has recently gone up there for $610k odd and that is as a house and land package, which should thus arguably yield a development profit on top of that price

 

[stretchy]

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.

And since when did a resource industry spokesman become an expert in the mechanics of the property cycle? Everyone is a genius in a bull market.

 

[alexlee]

And since when did a resource industry spokesman become an expert in the mechanics of the property cycle?

More to the point, when is a resource industry spokesman even going to say bad things about the mining industry or its prospects?

I read an interesting article on differing views on the commodities boom between Jim Rogers (the commodities bull so often quoted in the media these days) and Stephen Roach (permabear economist at Morgan Stanley). Both are respected, knowledgeable and biased. Who is right? Who knows. My own thinking: somewhere in between.
Alex

 

[Pete]

Bring it on

I believe the current resource boom in Perth is a '1 in 100 year' super-cycle, the likes of which were last seen in the late nineteenth century.

I look forward to seeing the ongoing positive impact on the WA economy and more particularly how it impacts the housing market in the Perth region.

 

[kph]

I'm in Pete's camp.
Not based on all the sentiment and hype, but based on what I see on the ground, and from the project and mining people also on the ground where it is all happening.

Kevin

 

[cumown]

In regards to how long and how big this resources boom will be?

How long and how much of Australian resources will it take to build the infrastructure of the USA 10 times over? 30 years, 100 years?

Keep in mind China is effectively taking 2 billion people from huts to houses and skyscrapers. Right now it’s just the basics, housing and roads; we haven’t even gotten into phones, ipods, TV’s.

I am doing some residential building in WA at the moment; I keep about ½ and sell 1/2. Even though the market has slowed I have still been selling 500-600k houses to people that work in the mining industry, some for investment, and some for their PPOR for their family in Perth (fly in fly out).

Over the next 5-10 years hundreds of thousands of mine workers will become millionaires. They will drive up the prices of properties in key locations and create a wave effect as people are pushed out of their suburbs of choice and pushed to the next suburb, and these people others to the next and so on.

These people will also spend money on lifestyles items further supporting wages for retail and other local industry.

Wage growth continues, job growth continues, immigration continues, property growth stops? Or prices go backwards? Doesn’t make sense.

Sydney has supported media house prices 150k more than Perth on lower wages and with higher unemployment and with smaller average houses.

I think the fact the market was in a frenzy with the median price increase some 100k in the past 12 months, but has now gone quite, has thrown people off.

If you actually take a step back, forget about where prices have been and how they have gotten here and just look at fundamentals, Perth and WA still stack up.

The market is taking stock and soaking up the new price levels, once this settles in the price growth will continue. I would suggest we will still see a minimum 8%+ annual growth over the next 2-3 years.

Cumown

 

[alexlee]

Cumown, so if a new investor asked you which city they should buy in, you would suggest Perth over, say, Sydney, Melbourne and Brisbane?
Alex

 

[cumown]

I get asked that question a lot, it was always easy to say Perth before, but Melbourne and Brisbane are looking very promising at the moment.

I wouldn’t touch Sydney unless you have some specific insight into an area or a project that you knew would do well. I think the Sydney market as a whole is going to struggle for a while.

I would suggest if buying in Perth now I would try to focus on “key location” properties (something with scarcity), or cheap properties with their own land (not units), or new build projects where you can build something for say 400k that will be worth 450-500k when completed.

Melbourne has some great key located suburbs that have been unpopular and undervalued for sometime; there are also some good areas around the bay that should have big growth in the future, Frankston looks very good.

Brisbane has all the good fundamentals, job and population growth, I don’t know the area all that well, but I’m sure there are lots of opportunities there too.

I would also suggest we have not seen the full effects of the sea change yet, and anything close to water, in an area with good lifestyle amenities and health care, will do well. This could be regional centres. Remember the baby boomers are just starting to retire and many of have dreamed of being close to the water.

I would probably suggest if someone asked where to invest I would think these 3 areas have the best market fundamentals, and I would probably advise them to invest in the area that is closest to them. This would give them more contact time and better ability to research the market.

As a note I am currently buying in Perth and Melbourne and plan to look at the QLD market in the new year.

Cumown

 

[gooram]

Some more hype on WA to fuel investors...

http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=10743

http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=10892

and now that daylight savings is coming... why wouldn't you want to move to WA!!! All we need now is extended trading hours.

http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=10997

 

[<KS>]

Great articles Gooram - and........

YAY FOR DAYLIGHT SAVING!!

Thats frickin awesome

A 3 year trial starting as soon as December....wow, how did we step out of the dark ages so fast!?

(forgive the pun)

<KS>