Perth - madness.

[BOO]

What do you think??

Perth median now at $406,000.

Representative from Hegney today reported that he expected Perth could actually hit Syd median price $500,000+.

What do you all think??? Could this be possible????

I would be surprised if this happened, but then I thought the boom would be over 2 years ago, what do I know??????

 

[stretchy]

400k. Golly gosh! Im planning on making the move to London next year - its becoming even more tempting to flog the PPOR... hope the hangover from this party doesnt last too long.

I did read an article in the Sat (or Sunday) paper about Hegneys invester survey - apparently only 70% of respondents believe prices will be higher in a years time. That was down from a previous figure of 95% six months ago. Invester confidence will be the only thing keeping the party going now given the prices - first home buyers are well and truely priced out of the market by now.

btw hecklersun - love the signature

 

[perky29]

I have digressed from joining into this discussion, but now would like to say this....be VERY CAREFUL if you want to buy into the property market in Perth now.
I am sure there are probably still some pockets out there that have growth potential - but this reminds me too much of what Sydney was like in July 2003, and Brisbane in October 2003. Then the RBA put 2 interest rate rises in November and December of that year - and prices have either stagnated or declined since then.
Examples : My IP in Kellyville, valuation of 650k in July 2003 - now I dare say 550k valuation would be pushing it.
IP in East Ipswich that I had a half share in ; bought early 2003, reno done and was looking at an asking price of 250k (block adjoining river , 2000sqm) in September, problems with builders made it be put on the market late October - interest rate rises happen and house was finally sold in new year for only 205k.
IP in Wakerley bought for 485k in early 2004 OTP, maybe worth 500 - 510 now?
My point is this - the pundits forecast two interest rate rises before the end of the year. Even though there is plenty of demand in Perth at the moment (as there has been in Brisbane - population growth is still around 35 to 40 thousand people per year going up there) ; affordability will become an issue
soon and Perth will stagnate just like the eastern seaboard has.

 

[Ricardo29]

ditto perky29.
wouldnt buy unless something WAY out of the ordinary. even then would probably be too cautious to buy.
some kit built 4 x 2 on a dime a dozen crap piece of sand just doesnt hold much weight in my eyes.
starting to hear people (just the public, not property people) thinking of selling...

 

[Rixter]

So for WA property investors. Is it a buy, hold or sell ?

Its buy in Brisbane and/or Melbourne.

 

[<KS>]

IMHO the best places to buy at the moment in Perth are soon-to-be pricey areas where prestige and high quality living standards can be achieved and used to keep prices stable.

Thats just my opinion....I just dont think finding the cheapest buy you can and holding on will be a good strategy past next January, whereas it definately worked over the past 5 years.

<KS>

 

[Kingbrown]

Perth median now at $406,000.

Representative from Hegney today reported that he expected Perth could actually hit Syd median price $500,000+.

What do you all think??? Could this be possible????

I would be surprised if this happened, but then I thought the boom would be over 2 years ago, what do I know??????

About 6 months ago, I told everyone in the forum that the median price of Perth would crack Melbournes in no time, and be at 400k before the end of 2006.

Nobody, and I mean nobody, agreed with me. The closest I got to agreement was "I hope so but don't think so".

I also floated the possibility that given that Sydney's median was falling, and Perth's was rising rapidly, it wouldn't be long before they would be equal.

Look at the FACTS:

Perth/WA (lets be fair, Perth IS WA, as far as population goes):

* fast growing, at over 100 people per day. As far as supply/demand goes, this is far more as a % than Sydney.
* one of the best cities to live in on earth - of course this is subjective, but Perth quite often hits close to the top of world rankings as far as "livability" is concerned.
* HIGHEST WAGES & LOWEST UNEMPLOYMENT
* High quality housing stock - large blocks, double brick contruction
* Scarcity of land (believe it or not)

There is no end in sight for Perth. Sure, there will be ups and downs, but for decades yet, WA will enjoy prosperity.

WA is now like California once was. Not so long ago, one of the remotest parts of the US. Now - is has the second largest city in the nation (LA), and some of the highest, if not the highest realestate prices in the nation. One of the most desirable places to live in the US.

I am biased, but fair. I would encourage anybody to place some FACTS (not future PREDICTIONS) on why I coudl be wrong.

Will Perth overtake Sydney - my guess is yes. A 25% rise in Perth prices would make the median $500,000.

Put it another way - if things continue as they have been FOR ABOUT 12-18 MONTHS MORE, PERTHS MEDIAN WILL BE HIGHER THAN SYDNEYS.

hmm food for thought I hope...

 

[stretchy]

Put it another way - if things continue as they have been FOR ABOUT 12-18 MONTHS MORE, PERTHS MEDIAN WILL BE HIGHER THAN SYDNEYS.

hmm food for thought I hope...

And you think once Perth's median hits Sydney it will remain that way forever? You are implying a price disparity trend that has exisited since statistics are available will suddenly break based on one mining boom. You are going to need stronger arguments that that to convince me.

* Fastest growing - irrelevant in the long term. Brisbane grew just as fast during the 90's and prices went nowhere (due to affordability constraints and overbuilding during the previous boom, which you have completely ignored in your analysis).

* HIGHEST WAGES AND LOWEST UNEMPLOYEMENT are transient - WA was on the verge of recession 5 years ago. Things change very quickly. No one knows how long the good times will last, but dont bet on it lasting forever. Resources are cyclical and big booms tend to result in big busts.

* High quality housing stock - how is this going to support prices? You buy an investment based on its future captial growth prospects and the layers of brick certainly dont feature too high in that analysis. A previous thread on this board debated the premium an investor should pay for double brick - the consensus was none.

* Scacity of land. The amonnt of supply in the pipeline is forcast to overwhelm supply in the next year or two. The building industry is going all out and has been for the last couple of years. Sooner or laster that stock will appear. Its typical excessive responses that capitalism is famous for

If Perth grows 30% in 2006 but then goes nowhere for 9 years, your average return is still 3%. In my opinion, thats the most likely scenario.

The only thing keeping this going is the resource boom. Every other factor became irrelevant about 50k ago when prices rose higher than Brisbane/Melbourne. Pay close attention to affordability - thats the big issue right now. When you start losing huge swathes of potential buyers due to high prices, you lose a large chunk of demand. I have yet to see a convincing reason why this factor will not kill this boom like it killed every other one. Sure wages are rising, but no where near the rate of house appreciation..

 

[Kingbrown]

If Perth grows 30% in 2006 but then goes nowhere for 9 years, your average return is still 3%. In my opinion, thats the most likely scenario.

Hi Stretchy,

If Perth's price rises another 30% it will be well over $500k.

Also, keep in mind your response is the same as others when I predicted median prices would easily reach 400k.

* "Sure, there will be ups and downs", translated, what I am saying is not that Perth's median will be higher than Sydney's forever, only that there is a good chance it will reach Sydney's before long.

* I didn't say Perth was the "fastest" growing, only that it was "fast growing". This matters.

* WA was on the verge of a recession in 2001? What happened in 2001 to house prices in WA? They grew.

* When I say "high quality housing stock" it means far more than double brick. It means if you live inner city, you get more land on average than inner city Sydney, for example. These things do matter, economically.

* From what I have seen/read, land supply will not balance with demand for many years to come.

* A .25% rise in intersest rates (very likely) will hardly be noticed in WA. It will just dent Sydney/NSW even further, bringing Perth's median ever close to Sydney's.

Perth is not immune from cycles, the "boom" will not last forever. But can you give me one reason why Perth will not overtake Sydney??? I am not 100% convinced it will, I would really like to hear why it won't.

As far as affordability issues go, whats the problem??? Miners getting paid 100k+, CBD accountants with a handful of years under their belts getting 100k is becoming common. Wages are increasing across the board.

I could go on with my *somewhat biased* reasons, but what I would really like to know is WHY IT WILL END SOON???

Your "strong arguments" for why not seem to be based on:

* "affordability constraints" - not a problem for Sydney reaching 500+, so Perth should have no problem there.
* a "big bust" coming to the mining industry - so when is it coming, and why?

------------------

In a nutshell, please school me (no sarcasm) on why Sydney should be so overpriced compared to Perth?

 

[D.T.]

I think alot of Perth's "extended" growth is based on China's boom. I say extended because the first few years of it was natural growth following the rest of the country's cycle, but now it's the rocket's supplementary booster The money / economy being generated because of the resources to china, accross all industries, is keeping affordability buoyant.

There is no reason why the affordability in Perth is any different to the affordability in Sydney. I haven't seen any stats, but I bet Perth has (or will soon have) a higher median wage.

 

[tonyd]

There is no reason why the affordability in Perth is any different to the affordability in Sydney. I haven't seen any stats, but I bet Perth has (or will soon have) a higher median wage.

See comparisons for different sectors at http://www.hays.com.au/salary/default.aspx.
Left panel: PDF files.

Tony

 

[D.T.]

This is someone's post from a share traders forum, he thinks that people capitalising on Perth's boom is unethical. But if people werent capitalising on it, it wouldnt continue- No?

I have to say, I am sick to the guts with the materialism that is rampant today. I hate it that so many people equate "success" with material wealth and spend most of their time and energy in pursuit of the buck. I hate it that in Perth, where I live, the mining boom has fuelled such a sustained rush on real estate that local first-home buyers have been all but cut out of the market at all levels, while greedy investors and cashed-up speculators (often from interstate or overseas) add property after property to their already swollen portfolios, sending the real estate prices ever upwards. The market has been so crazy that it has been commonplace for months now for speculators to sell a new acquisition for big profit before settlement, thereby inflating prices even more and even faster. The rich get fatter and fatter, while the battlers watch on helplessly, as their great Aussie dream grows dimmer and dimmer. I know this is capitalism, this is about cycles, blah blah, but there's something ethically putrid about what is happening, and that's as far as I care to think about it right now.

 

[tropic]

What is your opinion about the large percentage (almost 50%) of property are purchased by investors in WA?
They don't need to keep them ie they can sell as soon as they think the price has peaked. Unlike PPOR where people will defend till their last breath so to speak.
I wonder if large number of investors will pull out from the Perth around the same time and pushing the price downward?
Opinion please.

 

[alexlee]

Does anyone see this scenario developing:
US slows (Fed raises rates too much just as property comes down and petrol prices really bite due to increased middle-east conflict). Imports from China decrease as demand from the US decreases. Foreign invesment in China decreases as short term Chinese prospects aren't as bright due to soft demand from the US for its goods. All the infrastructure projects, property developments, etc in China that are heavily funded by export dollars or direct investment fall.

The overcapacity, corruption, bad debts and social unrest (from land grabs, pollution, poverty) in China flare up as a result of a stumble in the Chinese economy. Government tries to put in reforms but fails mainly because all the provincial governments just want to protect their own provinces without regards for the country as a whole (this is a recurring theme in Chinese history: the provincial officials having too much power and ignoring the central govt- 'the mountains are high and the emperor is far away'). You can see signs of provincial independence from the excess manufacturing capacity that's building up because there's no central control.

Demand for commodities fall as Chinese infrastructure projects and manufacturing stall. The vaunted 'Chinese middle class' die stillborn as the economy slows. Hedge funds cut their commodities positions, causing prices to fall further (how much of the current commodities price is actual Chinese demand and how much is hedge fund speculation?)

BHP just announced a major cost over-run in some of its projects. Bottlenecks cause companies to pay far too much to suppliers and staff (a la dot.coms paying insane salaries to new grads) Mining companies are stuck with skyrocketing costs (maybe they signed long contracts with equipment manufacturers to provide equipment because they were concentrating on bottlenecks and not decreased demand?) just as demand softens. Mining companies cut costs, abandon high-cost projects and cut staff.

THAT is what will halt the commodities boom. There's a historical precedent of a rapidly industrialising economy stumbling: Japan.
Alex

 

[stretchy]

Hi Stretchy,

If Perth's price rises another 30% it will be well over $500k.

Also, keep in mind your response is the same as others when I predicted median prices would easily reach 400k.

It seriously wouldnt suprise me if prices did grow to 500k in the near term - markets can and will go higher and harder than anyone could expect. I'm not in the game of predicting when it will end. I'm asking you to look at things from a long-term perspective rather than the experiences of the last few years. Its human nature to extrapolate the recent past while discounting the more realistic and accuate long-term trends. And the long term trend indicates Sydney being pricier than all major cities, and Perth cheaper than Melbourne at the very least. There is good reason for these trends that you cant simply discard based on the mining boom. Just because that pattern is currently broken does not imply it will be broken forever.

Ben Grahams famous quote is particularly important now - "In the short run, the market is a voting machine but in the long run, it is a weighing machine". In the long term I find it hard to believe a small isolated city 5000kms from anything will maintain higher demand than Sydney - one of the true 'world cities' with over double the population and huge advantages in respect to employment and other opportunities. And thats coming from someone who is born and bred in Perth. I love this place, but lets be realistic - the current conditions are not sustainable in the long term.

* "Sure, there will be ups and downs", translated, what I am saying is not that Perth's median will be higher than Sydney's forever, only that there is a good chance it will reach Sydney's before long.

True - but what happens afterwards is extremely important to anyone considering purchasing property now. Those who got in 3 years ago couldnt care less as they are well and truely in front, but a long period of flat prices will seriously reduce your real return. Of course the real problem is determining how risky it is - and its true that if someone listened to the doom-sayers a year ago they would have missed out on massive gains. But its still risky, and those risks need to be acknowleged. Your statements regarding California imply that you see this boom continuing forever - just like those 'New Economy' guys back in the late ninties.

* I didn't say Perth was the "fastest" growing, only that it was "fast growing". This matters.

It matters only if you relate this demand to the underlying supply being produced. If a million people moved to Perth every year but 1.5 million houses were built, then prices will go down. The population growth cannot be looked at in isolation.

* WA was on the verge of a recession in 2001? What happened in 2001 to house prices in WA? They grew.

I dont have statistics to debate this, but I would be willing to assume house prices do not rise quickly in a recession. The crucial element of investor exuberance is missing - where are the speculators and the herd to lift prices?

* When I say "high quality housing stock" it means far more than double brick. It means if you live inner city, you get more land on average than inner city Sydney, for example. These things do matter, economically.

True. I assumed you were only referring to the domination of double-brick construction in WA.

* From what I have seen/read, land supply will not balance with demand for many years to come.

I disagree - based on the last ANZ property report Perth is heading for oversupply. Many people discount these 'experts' without providing any evidence themselves to justify it. Truth is the ANZ guys have access to time and resources that we would find hard to match, so I do put weight in their opinions. Given that the Perth construction market is at full bore and will be for some time, an oversupply is likely. Again, this is the typical reaction to boom times. Its basic capitalism - when demand rises, supply will rise to meet that demand. Given the long lead times in construction, that supply usually comes on towards the end of the boom, compounding the situation.

Perth is not immune from cycles, the "boom" will not last forever. But can you give me one reason why Perth will not overtake Sydney??? I am not 100% convinced it will, I would really like to hear why it won't.

In the short term I cannot provide a reason why Perth wont overtake Sydney.

As far as affordability issues go, whats the problem??? Miners getting paid 100k+, CBD accountants with a handful of years under their belts getting 100k is becoming common. Wages are increasing across the board.

I could go on with my *somewhat biased* reasons, but what I would really like to know is WHY IT WILL END SOON???


Your "strong arguments" for why not seem to be based on:

* "affordability constraints" - not a problem for Sydney reaching 500+, so Perth should have no problem there.
* a "big bust" coming to the mining industry - so when is it coming, and why?

Not everyone is benefiting from the boom. Those 100k a year miners and execs can temporarily boost the market higher but not forever.

In a nutshell, please school me (no sarcasm) on why Sydney should be so overpriced compared to Perth?

I have provided some reasons above but hopefully an analogy will help - its like saying that Karratha should be pricer than Perth. Sure it will be for the short term but never for the long term. Karratha cannot hope to compete with the opportunities a city like Perth can offer and to a lesser degree Perth cannot compete with Sydney. Its not a perfect analogy but I hope that explains my opinion without making this post even longer than it needs to be

 

[kph]

FWIW Stretchy, I think kingbrown is closer to the mark and there is no real reason why Perth cannot surpass Sydney in median price, or in job sustainability around $100k for the longer term.

Karratha is pricier than Perth and it will not 'bust' any time soon.
When you have land ballots for 68 lots with 212 applicants (twice in the last few months) and a requirement for 1000 houses, then you have a market that is fundamentally under supplied and will remain so for a few years yet.

The same applies to Perth, and the suggestion that if you build 1.5 mil houses and the demand is only 1.0 mil then you have oversupplied the market is senseless, as logistically, it is not possible to build 1.5 million houses in a year in Perth.
Perth will remain under supplied for many years.

I think too many people are concentrating on the longer term outlook,, whereas in the shorter term ( 2 to 5 yrs) the market will continue to be strong with great gains to be made.

What I am suggesting is to make the most of it while it lasts, as it is an opportunity that does not come around too often.

The stats I heard this week from a business banking manager for Karratha is 10 yrs of projects to commence with a value of $64 billion.

China is not going away, and they are not dependent on the US for trade contrary to what some say.
India has not even been mentioned.

We are in a super commodity cycle which will go for many years.

Perth is just having its time in the Sun...

Our perception does not allow us to believe that Perth can out perform Sydney, let alone do it sustainably, but there is no reason why it can't.

All this of course, is just my opinion, some informed, some dreamt up.

KEvin

 

[alexlee]

I'm just wondering what people said about Sydney in 2002 - 2003.
Alex

 

[Kingbrown]

Thanks kph/stretchy for taking the time to add your opinions!

Some really great topics/ideas, that I could debate for a long time, but essentially, I believe we may be on a somewhat similar page.

Alexlee, of course there is a bust coming, nobody doubts this (the timing is the unknown factor). However, my curiosity lays i how "far" prices can currently rise in Perth, and is Sydney a good place to look in determining this.. since both cities are in the same nation. That is, are there reasons why Perth's median could not equal/surpass Sydney's in the short term? (even if only temporary).

In effect, if the answer is yes, there is currently about another 30 - 35% price difference (on average) between PER adn SYD, could this gap be closed? Why/why not?

(i'm not into analysis paralysis, this is just a great concrete example of learning about factors that effect the cycles that occur in RE in different Australian cities, and this I am interested in)

 

[TheAnalyst]

King Brown. I am with you. But I think it could take a little longer.

 

[kph]

How do the two state economies compare ??
What are they based on ( apart from the obvious mining slant in WA) ?
How do the two state governments compare with one running deficits vs one accumulating surpluses ?
How are they funding infrastructure projects ?

Personally I don't think looking at Sydney's previous cycle is a fair comparison to how Perth will perform.

Perth in my opinion, is fundamentally 10 years behind the east coast in development and infrastructure, and it is in the process of catching up right now.
It will continue for 10 years and we will not recognise the place in 10 years time.

Along the way, a lot of prosperity ( wealth) will be created.

Its like going back to a place where you grew up as a kid, and haven't visited in many many years.
You hardly recognise the place, and it soon becomes obvious that you never would have thought it would have ended up like it currently is.

It grew while you were away.

Perth is just growing up.

Kevin