Perth - madness.

[Pete]

Late to the party?

Thanks, Dazzling.

Countering the pathetic yield in your example is the rising market for rents, and the booming capital growth.

It is difficult to imagine rents rising anywhere near enough to dramatically improve the yield.

General consensus is that capital growth is running out of steam. Some are suggesting prices have already peaked.

Seems to rule out 'normal' investment in the current booming market: consistent with comments from Perth investors that they are not buying now.

Perhaps those entering the residential market now are gambling on quick short term gains?

It'll be interesting to see what happens in the next couple of years. As always.

regards,

 

[see_change]

This time things are different - me!

regards,

See Change

 

[see_change]

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.

I was on holidays about a year ago and looked at a unit near where we were staying . Agent told me it was cash flow positive . At that stage I asked for the figures , and was suprised that he considered it to be cash flow positive if it generated a return when you'd paid 100 % cash for it. I said that wasn't the normal definition of cash flow positive , though he said that was what they meant it all of the books on property investing.

I wondered how many people actually believed him. ....

See Change

 

[Kennethkohsg]

Dear Pete,

1. While I agree with you that in the immediate short term, the basic market fundamentals are still strong to support the Perth's booming property market such as limited housing supply in the short term, increasing employment and population/migration growth and expected continuing resource boom etc, there are also unconfirmed reports of Perth's median house price being "over-valued" by 20% and stretching its own limit of housing affordability, potential looming housing over-supply, not to mention the current hot market fever and increasingly widespread of fear/"mania" of missing out on this property boom by the average Dad and Mum investors.

2. Against the big picture risks of a potential bird flu pandemic, change in appointment-holder for the American Federal Reserve Bank Board chairmanship which last caused a world-wide stockmarket fall, continued interest increase environment outside Australia, current political-financial crisis in Thailand and open mass public unhappiness/protest against high petrol prices in Indonesia and Malaysia, current China-Taiwan confrontative positioning, etc, I will still urge members to be prudent, cautious and safe, in their property investing.

3. For your kind update, please.

4. Thank you.

Cheers,
Kenneth KOH

 

[Pete]

Agreed, Ken.

I think we are all saying pretty much the same thing. "Violently agreeing", as I've heard it expressed.

Chatting to a fellow at lunchtime, he mentioned that South Africa has a similar resource driven boom - extending into residential property - in Jo'burg ATM.

cheers,

 

[redwing]

I've been looking at realestate.com.au today at various areas within Perth up to $300k..not much of interest and I'm being pushed to the Eastern suburbs by the pricing for houses/townhouses..

Catch 22.....CG on current IP's is going great,but on the other hand prices on everything else is rising fast as well..

 

[Pete]

or depends on your perspective, Redwing. There are plenty of people who wouldn't might being in your situation.

 

[wealthyjay]

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

I agree, the time to start worrying is when the masses start beleiving that this time it will be different. It never is.

You can't keep doing the same thing, and expect a different result

Wash, rinse, and repeat

 

[Kennethkohsg]

Dear All,

1. Please allow me to share my own Singapore experience in this forum. I can still vividly recall how when the Singapore Govt started to introduce a slew of pro-property related policies back in 1993, which caused the properties there to "suddenly" and quickly move up at more than 40%p.a., some of the existing house owners start to cash out profitably some time in 1995, after a 2 years strong bull run, only to realise the bull run was still as strong as ever.

2. After waiting at the sideline for more than a year and continue to see the strong bull charge strongly further, together with the other Dad and Mum investors, some of them began to re-enter the market again in 1996, towards the market peak, only to see it crashed down a year later, during the July 1997 Asian Financial Crisis. To their own own belief and pains, sonme of these unfortunate and inexperienced investors who decided to continue holding onto their properties, continued to see their own house prices decline even lower over the next few years till it has become some 40% lower than their 1996 price peak when the house purchases were made. Many of them are still suffering from negative house equity with the same properties till this day, even after a 10 years period has lapsed already.

3. Fortunately for my family then, we were able to cash out on my own HDB flat at the market peak in February 1997 for S$520,000 with a cool $420,000 profit within that short 4 years booming period, exactly about 5 months before the Asian Financial Crisis strike in.

4. I am beginning to see a similar situation developing in the Perth property market today.

5. I must admit that iIt is not easy for many people to stay off the booming market and do nothing but to continue to see the market charge even more strongly than before especially for the average Dad and Mum investors given the wide publicity of the hot market situation and see the house prices rising up so fast and soon to a level beyond their reach if they fail to take any action now;- on the other hand, it is equally risky to try to make some quick monies, by entering at such a high price and risk a sudden price collapse over the next 1-3 years period.

6. Either way, people get "itched" to decide and to do something about their own situation and about themselves, given the increasingly and continuing wide publicity about the hot property market fever and the widespread "mania" about fearing of missing out on this seemingly "once-a-lifetime" strong market boom!

7. To me, this is the same herd instincts and operation of human "FEARs" and "GREED" at work among the average Dad and Mum investors, including ourselves.

8. Unless we remain strictly self-disciplined and focussed in our own property investing by doing our own independant research and due diligence and being clearly aware of the market sentiments and the herd instincts being at work within the present booming Perth property market, it is very tempting and human of us, to feel "itchy" ourselves and get tempted to do something about our own present situation, like the many average Dad and Mum investors... To effectively overcome the "itch", we will need to exercise good "self-control" and this is what "prudency" and "safe" property investing is all about.

9. For your kind update, please.

10. Thank you.

regards,
Kenneth KOH

 

[Keen]

Kenneth,

I have always valued your opinions on the Perth market.

I am curious to know how long you believe such growth will continue?

For my last purchase I targeted a very hot suburb that would also have good long term capital growth prospects.

As my gut feeling is that the Perth market probably has 12 - 18mths good growth in it I am now considering buying blocks of land with a view of selling in the 6 - 12 month range. This strategy is to assist in reducing my Non-deductible debt.

Meanwhile I have concerns for my brother who has had to sit frustratingly from the sidelines and is now ready to invest. I wonder if it is almost too late.
If he doesn't get the decent growth he needs to make the transactions profitable he could be holding a negatively geared property that goes nowhere for years.

Regards

Keen

 

[Ausprop]

keep your feet on the ground guys - the way you are talking you would think that prices have raced ahead to the extent that they are at 10 times earnings or something! If you think prices are high now, check out the article in Saturdays West re typical prices in 2015. Also this weeks BRW had an interesting article on coastal property.

This all makes me wonder if I should be working harder to hold onto more of my development stock. Throughout my entire life I have always sold at times that I thought were market peaks, only to see prices sail onwards and upwards.

 

[Kennethkohsg]

Dear Ausprop,

1. Honestly speaking, in my mind, presently I have no doubt that you will be better off, holding onto more of your development stock during this period instead of buying more new pieces of vacant land and building new houses to sell again, at this stage of the Perth property market and given the prevailing building industry and market conditions.

2. Furthermore, if by your own admission, you really think/feel that in your entire life, the same pattern of you selling your development stock "too pre-maturely" and "failing to maximise your own profit" keep repeating itself again and again in your own life, then it seems to me that either you have "failed" to notice the need to change on your part, as to the proper timing when you should be selling your development stock - even though you are consciously aware of it, or that you have recognised its need for change but has simply failed/refused to change for one reasons or the other, which is best known to your goodself.

3. Thus, may I humbly suggest to you to reflect on this first thoughterhaps the same patterns of things keep repeating itself in our own life as it is some sort of a lesson for us to learn but somehow we have refused to recognise it or/nor want to learn the required lessons, resulting in the same patterns of things repeating itself again and again, in our own lives, time and time again and that unless we implement the required change and learnt the required lesson in life, the same pattern of things will continue to keep repeating itself to us again and again until one day we can no longer tolerate it but are sort of being forced/"pressured" into take some form of corrective actions at the last minute/desperate circumstances, in due course.

4. Alternatively, may I further humbly suggest for you to reflect on this second thought:- that perhaps we may have noticed the need for change but was somehow not "sufficiently motivated" to implement the change for one reason or the other;- ( and I suspect) probably due to some "subsconcious" beliefs/habits/instincts/reasons which we will have to un-cover within ourselves so as to allow the change to effectively take place within inside us before the pattern of things in life would go away once and for all.

5. I am also personally sure that once we have learnt the required lesson(s) in life and implemented the neccessary changes within our own lives, the same pattern of things will no longer recur/repeat itself to us again in the near future.

6. So, may I humbly suggest that you consider trying some new responses to the same challenge which you are facing and to expect/see a different outcome, which is likely to come about as a result of your new responses.

7. For your kind update and due considerations, please.

8. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

Kenneth,

I have always valued your opinions on the Perth market.

I am curious to know how long you believe such growth will continue?

For my last purchase I targeted a very hot suburb that would also have good long term capital growth prospects.

As my gut feeling is that the Perth market probably has 12 - 18mths good growth in it I am now considering buying blocks of land with a view of selling in the 6 - 12 month range. This strategy is to assist in reducing my Non-deductible debt.

Meanwhile I have concerns for my brother who has had to sit frustratingly from the sidelines and is now ready to invest. I wonder if it is almost too late.
If he doesn't get the decent growth he needs to make the transactions profitable he could be holding a negatively geared property that goes nowhere for years.

Regards

Keen

************************************************8
Dear Keen,

1. Thank you for your kind words. I am much "flattered", though.

2. In my opinions, bearing any unforeseen major regional/worldwide financial crisis happening during/in 2006, like you, my own gut feel is that Perth property market will probably have another 12-18 months to go till about 2008.

3. As for beyond 2008, presently I am still "clueless" and "uncertain" myself at this point in time, about what/how exactly the Perth property market will eventually develop itself post-2008.

4. Please be informed that I am presently looking closely at Thailand where there is an ongoing large scale public protest against the Thaskin Govt in Bangkok (and outside the Singapore Embassy there), which may trigger off a potential regional crisis in ASEAN. This can/may trigger off a potential crisis there which can be similar in nature and as large in scale as the last Asian Financial Crisis in 1997. (As you will probably recalled too, the last Asian Financial Crisis was reportedly triggered off by the Thai Central Bank failing to effectively defend its Thai Bath currency against onsalughter by the currency speculators and the overseas large hedge fund groups initially and which eventually spread to the rest of the Asian Tigers Countries.)

5. I also heard over tonight's news that the most recent case of human death due to the bird flu, which is suspected to be the first case to be spread from human-to-human transmission basis, is being reported in Shanghai City/Mainland China. There was also some (similar? suspected) deaths also being reported in Cambodia too.

6. While back in Singapore, our Govt is busy battling with the Head-Mouth-Foot Diseases(HMFD) epidemic, having temporarily closed down some of the student care centres and their operations. At the same time, our Singapore Govt is laos kept busy managing the "war of words" with the Malaysian Govt regarding the proposed (joint) construction of the Third Causeway linking the 2 countries.

7. In view of the a/m developments, I will still urge caution, prudency and safety for our property investing activities, especially within the Perth property market.

8. For your kind update, please.

9. Thank you.

regards,
Kenneth KOH

 

[tropic]

Hi Ausprop,

I read the article on the West today. Someone with a crystal ball is saying that a $295k house in Balga will worth 1 million in 2105 (approx 15%/annum). I wonder how much the rent will be in Perth in 2015, will it be $600-700/week in Balga? Are we going to have huge inflation, considering that rent tracks inflation. Or people will be buying properties with very small yield.
The article also said her 295K property that she bought in February already went up by 45K in one month!!!
It feels like the dot com boom back in 1999-2000. It's just hard to believe and doesn't make sense.

 

[stretchy]

Sounds like a typical case of recency bias, where people place too much importance on recent events and assume they will continue forever.

15%pa price rises would make every house in Perth unaffordable in 10 years or so. It was a stupid article that totally ignored the fact that house prices have not grown anywhere near that rate over the long term.

It doesnt make sense because its flat-out wrong.

Although I would love to know how Perth behaved during the last couple resource booms..

 

[Rixter]

Although I would love to know how Perth behaved during the last couple resource booms..

Over past resources booms I seem to recall Perth median prices outperforming Melbournes median prices for the same periods.

 

[Kennethkohsg]

Over past resources booms I seem to recall Perth median prices outperforming Melbournes median prices for the same periods.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

1. Yes, depending on which data source which is being referred to.

2. For REIWA, Perth median house price is still $325,000 for Jan 2006. For APM, I recall reading somewhere that the Perth median price as being reported to be $365,000?/$375,000?

3. However, at one of the breakfast meeting at the UWA Club, I also heard Gavin Hegney, Chairman of the Hegey Property Group, whose Valuation Section is believed to be responsible for more than 50% of all valuations conducted in WA, quoting his own research studies on the house median house for1996-2005 period:- that the cumulative increase in the Perth median house price over the last 10 years period, have already catched up with that of Mebourne and slightly behind that of Sydney and therefore some caution is required regarding having the expectation of a continued fast growth rate in Perth median house price, despite the current ongoing resource boom in WA.

4. In the same briefing, the GM of St. George Bank for WA, also cautioned about expecting the fast growth rate in the Perth property market to continue indefinitely into the future, as the Perth median house price is fast approaching its housing affordability limits and in view of the worldwide uncertain future, arising from the change in the American Federal Reserve Chairmanship, risk of a bird fly pandemic etc. This was despite the current ongoing resource boom in WA.

5. Bearing unforseen circumstances, they were however confident current Perth property market is likely to grow at some 10%-15% for 2006, being supported by some underlying market fundamentals .

6. For your kind update, please.

7. Thank you.

regards,
Kenneth KOH

 

[Cheeks]

I seem to remember people saying that when articles such as Saturdays property article appear in the papers it was time to reassess and look at other opportunities... I wonder how many people will be visiting Balga home opens today

Now I'm not saying that the WA market has completely run its course but I believe we are very close to the top and probably only 12 -18months off the peak.

What I believe more than ever is people have to be even more selective of the properties they purchase as there is a real risk that when the property market turns some people could find that after 2-3 years of owning the property it is either worth what they purchased it for or worse still, it's worth less. Now with a long term view this negative equity could be disregarded by some but I suggest that wealth creation should be continuous and 2-3 years of not doing anything is not continuous.

I think people should be assessing their strategies and not hoping that what worked in the past will always work (not that anyone on this forum will be doing that). I'm not suggesting a complete change a strategy but a tweak to keep it in line with the market conditions.

I also suggest that a stall in the market will be a good thing for long term investors, think of all the opportunities that will be available.

Now, yes for my next purchase I will be looking outside of WA but I will remain committed to my buy & hold properties in WA and I will not be selling them as I believe they have long term potential. I will still be closely monitoring the WA market for opportunities but with a sharper pencil.

Out of interest what areas do people think will retain some heat when the WA market slows?

I have had some concerns that property in Rockingham and Mandurah will be some of the worst hit. Now I know they are close to the water (well some are) but there is also less work in these areas and travel can be an issue. ok, ok, I know about the train, but people in Perth don't like traveling for 40mins or 60mins to get to work (unless this has started to change). It is my understanding that people like to be close to work and get home quickly after work. So when the boom comes out of the mining industry and work is harder to find (limited fly-in fly-out) will these areas still be able to sustain the amount of housing being built? I’m happy to be corrected but I think properties right on the water will be ok but properties a little further away will be an issue, as soon as I have to think about getting in my car I may as well be further North than in Rockingham or Mandurah.

Comments welcome

 

[Ausprop]

I can't see any real problems with affordability in the near future - with salary levels similar to Sydney I can't see any problems with the Perth median rising significantly from this point, particularly in the absence of a much needed rate rise which I can't see us getting. Similarly, with the amount of forecast requirement for new housing in the Peel region I hold no concerns about supply along the Rockingham/Mandurah strip. It would be nice to think that supply could increase to the extent that it was balancing up better with demand, but demand for skilled labour seems to get stronger and the cyclone damage in Queensland will make it worse. Interestingly the latest run in prices has been driven as much by increasing building replacement costs if not more so - puts the theory that land goes up in value and buildings go down to rest. The article in the West wasn't particularly sensational, pretty much just a statement of fact re compound growth... if things continue as they have over the past 10 years a house will be worth X. Who would of thought grandmas house in Vic Park that we sold in 1983 for $30k would now be worth $600k. Unless something fundamental and out of the blue happens that makes it "different this time" this pattern of growth continue

 

[tropic]

Where can we get the info on average income in Perth?
If the Saturday West prediction comes true, median price in Perth will be over $1 mill in 2015! Unless the whole of Australia goes up as much there is no reason why people will not move to other states for cheaper housing, like what is hapenning recently with the Eastern States.
Regarding interest rate, we know that the RBA will not lift the IR to slow down the housing growth in WA because the nation overall market is already declining. But if the $AUD goes down more (we lost 5% in exchange rate in the last few weeks) it will increase inflation.
When we compare property prices and growth rate, one significant component I notice is different, the IR. It used to be a lot higher. I paid 17% in 2000. Will the IR stay where they are in a forseable future??
I am amazed with the strength of Perth market!!!