Perth to become most expensive city!

A

alexlee

http://www.smh.com.au/news/national/sydney-to-lose-property-crown/2006/11/03/1162340049804.html

A look at the median price v wages suggests not so much that Sydney has become cheaper, but that Perth is JUST AS EXPENSIVE as Sydney.

Checking multiples of median home prices v annual wages:

Syd / NSW 9.27
Per / WA 8.81
Can / ACT 6.64
Dar / NT 7.40
Mel / VIC 6.61
Bri / QLD 6.80
Ade / SA 6.29
Hob / TAS 4.79

Distortions, of course, abound, mainly comparing MEDIAN prices to AVERAGE wages. Just very superficially, this implies Brisbane and Melbourne still relatively affordable, while Sydney and Perth are very expensive. Given that rents are THAT much different between Sydney and Melbourne (at least, not as much as home prices) and it's hard to see attractive buys in Sydney in general.
Alex
 
Other interesting observations include that Sydney median has increased 164% in the last 12 years (from $197k to $520k) while the Perth median has increased 270% ($133k to $492k). So in the depths of the last recession, you would have been better off buying Perth than Sydney and hold during a period when Perth was very much dismissed as an old economy backwater, especially in the late 90's as the internet boom was in full roar and the whole of Australia was considered just a big mining camp. It still IS considered a big mining camp, but in a good way.

When I first started buying in 2000, Sydney colleagues asked me why I was buying in a quiet town like Brisbane. A few years later, having clocked decent 8 - 10% gains and getting 7% rent on cost, some American colleagues from New York asked why I was investing in property in a backwater like Australia!

Remember property comes in cycles. Different states will have different cycles. History tells us that future cycles will resemble current and past cycles, so detailed study now will pay off in the future. I know what I'm going to do the next time there's a bust! Buy the cheapest and most unloved city!
Alex
 
Perth 'more expensive than Sydney'

The SMH article was a good read Alex, here's one from News.Com.Au in the same vein.

PERTH is set to overtake Sydney for the title of Australia's most expensive property market, with those on the east coast stagnating, an industry analyst says.

Property information group Australian Property Monitors (APM) also warns that another interest rate rise next year will have a significant impact on the nation's property market.

The resources boom is driving up property prices in Perth and Darwin, with APM saying the margin between median house prices for Australia's most expensive capital city, Sydney, and Perth is now only 5.5 per cent.

Three years ago Perth house prices were less than half of those in Sydney.

ETC,,,,
Click to expand...
 
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Seems to be the Property News of the Day?

Perth Property Blitzes Sydney

and

Sydney House Price Alarm

SYDNEY house prices are forecast to fall 5 per cent after next week's interest rate rise and the city is set to lose its title of Australia's most expensive real estate capital.

The Saturday Daily Telegraph can reveal economists and real estate experts believe the rates increase will spread more doom through the local housing market.

Their fears are so grim they predict Perth, fuelled by the resources boom, will overtake Sydney by the year's end as our most expensive real estate city – the first time this has happened in the nation's history.

The Reserve Bank's rubber-stamping next week of the third interest rate rise in six months is tipped to see rates rise 0.25 per cent on Wednesday, placing enormous strain on home owners with mortgages.

Sydney prices have dropped 9 per cent since the last boom and are not expected to rise for another 12 to 18 months.

Perth's median house price is now less than $30,000 behind Sydney's.

ETC.......................
Click to expand...
 
So I have this one question that is bugging me and has been while watching this happen........

Does this mean that almost everyone in Perth has been given a big enough payrise to go out and buy up like mad.....!
I have relatives there and they still earn their same old wages and have not recieved any special treatment.

I know there is a resources boom and that WA has become popular but forgive me for thinking that it's still got to suffer from price point realisation very soon....! For the 'locals' anyway......

Is Sydney going to be a ghost town....I doubt it......what happens when the resources boom ends....will all the investors rush back East...?

For sure ;)

All they need is another reason to chase the trend....after it has started.

Bob Carr and Michael Egan gave the excuse to end the run up in NSW....I wonder what will be the catalyst in WA....?

Anyway, it's good for those who have made some CG's.....:)

Markets....!:cool:
 
I quite agree. I think a sizeable part of the market is being driven by investors chasing big gains. For now, the mining boom is feeding that. But ultimately 30% is NOT sustainable (and looking at the 12 year gain according to the Herald figures, Perth is gained more than Sydney), and Perth is trending above average in terms of growth. In the long term any city must track the average. Perth CAN keep growing if the mining boom continues and basically transforms Perth into a mining version of London or New York, but will that happen?

Even in New York and London, with its large groups of banking staff supporting crazy prices, don't expect 30% increases. If growth expectations go back to, say, 10%, investors are going to sell. If the mining boom also falters (it doesn't have to crash) Perth is going to pull back. Looking at other fundamentals like rent (stupidly low yields a la Sydney at the peak), I would say Perth is overvalued.
Alex
 
There are other pressures on the market.
Cashed up migrants as well as cashed up resource boom recepients.

If the underlying demand has not yet been filled, then no reason why prices won't keep climbing.
Anyway, there seems to be some dispute between what the correct median is. REIWA seem to think its quite a bit lower.

Don't think there is a correction due anytime soon.
More likely the market will resort to a more typical and lower growth rate.

Obviously 30% + is unsustainable.
Rental yields have typically always been low in Perth.

Its becomng a two tiered society ...those on normal wages and first home buyers are simply getting sidelined.
Great receipe for social unrest in the future .....

Although I do know some normal people on normal wages who are now property millionaires.
But because they got there by accident and not design, they don't know what to do next.
They're just asset rich but cashflow poor.

kp
 
I have nothing against Perth - but I have lived in a few major (English speaking) cities across the world - and there is definitly a trend - the major city within these type of countries is the most expensive (hell, most of people I know from overseas think Sydney is the capital of Oz - and have never heard of Perth) - this has never changed from country to country. I just cannot see Perth surpassing Sydney in price (longterm I mean). Thinking logically and looking at history - it simply won't happen. I believe Perth is a fantastic place, but Sydney has been the major city in Oz since its existence for many reasons - and none of those are because of a once in a lifetime resource boom.

Just my thoughts - but due to Perth's prices being so close to Sydney's I see either a boom hitting Sydney, or a strong fall in Perth's prices.

Cheers,
Jen
 
I am no economic expert by any means, but I do recall the closest Perth prices have previously gotten to Sydney was during the era when a Gentleman by the name of Mr Bond was active in WA. This was immediately after the Nickel boom when the money then flowed into real estate according to Trever Sykes, who wrote Blue Sky Mining (about the last big mining boom) and The Bold Riders (WA Inc et al). Trevor was a junior financial reporter during those times (he is now a senior financial reporter with the AFR). Its been a while since I read them, but I recall the property boom back then smashed to halt when Bonds companies hit the wall, and dragged the rest of the property market down. But the mining boom was already over then, so its a different kettle of fish now. I found these books very interesting and easy to read for such topics.

I think long term Melbourne and Sydney are stronger markets for sure, but Perth is in the middle of a huge growth splurt for multiple reasons. I still think next year will be the figures that indicate how big a bust may be, the September and this quarter are just left over from the recent high growth levels.
 
HI all

I think the figures for this quarter will show a slow down in the market, I have seen in happening for the last 2 months.

The apartments I have been buying since may were increasing in value 10k a month, since Aug that has stopped, previously they were selling at above advertised price now they are selling below advertised price.

the problem is the sellers have not realised and are holding out for the top $.
I just put an offer on a property that would have been sold within 2 days of listing it has been on the market 70days.

I do not follow house prices, but I know my mandurah property hasn't increased in value much in the last 6 mth - 100k in the previos 6 mths 212k to 320k

Celeste
 
What sort of apartments Celeste ?
Off the plan, in the city, or older places in more established areas ?

Curious how you established rises of $10k per month.

I think a lot of this data is so slow getting to the market, that your suggestion of a slow down 2 months ago is correct.
It typically takes 60 days for any sales to become sales evidence and a lot can happen in 2 months.

The only ones who have more up to date info are the RE agents and settlement agents who are dealing with the contracts as they go unconditional.


I don't think there is any indication that there will be any meaningful falls in the Perth prices, just as there is no reason for Sydney prices to boom any time soon.

All that would just be wishful thinking...

The prices in Perth are tied to vacant land prices and building prices, and its unlikely they are about to head south.
Market price is being underpinned by the cost of a house plus land.

kp
 
The West published this:

http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=11991

Anecdotally, there seem to be more listings and properties are staying listed longer.

The question is whether the fundamentals support 30% increases (I would say no) and how big the investor influence is (i.e. if expected growth rates drops to a still respectable 10%, how many investors will just bail and look for the next hot market, and will owner occupiers be able to absorb this)?
Alex
 
I don't think there is any argument that increases of 30% or 36% are not just unsustainable, but also well and truly over.

The question is if they growth rates continue at 10%, where would investors look if they were to bail ??

Listing were historically low prior to the current situation where they are still low but much higher compared to previously.

The market is back to where you have properties listed for an asking price with buyers now able to negotiate around this price.

I think there are a segment of investors that will sell regardless, just to lock in profits and remove the risk from the equation.
This selling will coincide with their feeling that the market has peaked or when their house and land construction has been completed and handed over.

Having said that, I know ppl who are still planning to build over the next 12 to 18 months and are still having trouble getting their builders to lock in a price.
'Material costs' arer still going up by all accounts.

kp
 
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In past booms, which city / country has managed to achieve 'back to normal' growth after the phenomenal growth we've seen in Perth? Booms almost ALWAYS overshoot, as do busts (in hindsight).

I'm still a believer that growth reverts to mean and that long term property prices are a function of wages, interest rates and population growth. Do we expect Perth, long term, to outperform the other states in terms of wages and population growth?

If you assume the mining boom will continue as it has and won't bust, yes. If, like me, you think mining is cyclical and therefore will eventually bust, then Perth wages and population growth, and hence property, can't be sustained. If Perth reverts to 8-10% growth, it would still mean the long term average has increased compared to historical norms. This will only happen if there is a paradigm change (e.g. the world starts to exhaust ore and oil reserves, say), which personally I don't believe in.

Based on that, the question I'm asking myself is: if we assume long term average growth will follow historical patterns, is it likely that Perth will be able to achieve higher than the long term average? Assuming mining is cyclical and therefore Perth won't boom forever?

The answer to that question (or, my opinion as to what the answer is, since I don't know for sure) will determine whether you should buy further IPs in Perth or not. My own strategy (based on my view of cycles) is to buy cities where the current growth rate is lower than the long term average. Currently, that would mean Brisbane, Melbourne and Adelaide.

My opinion only, and I could very well be wrong. China might manage its bubble without blowing up. But in the long term, I believe that the basic strategies will win out over betting on new paradigms.
Alex
 
Hi all

To answer KP
1 - 1960's 1 bed room apartments in medium to large blocks. - could be shifting up to 3 x 1 duplex's tomorrow.
2 - I established the increase from the asking prices in the paper / domain etc. and confirmed the sale prices with current sale prices from my friendly REA's. Also, when I purchased my 1st apartment they had just signed a tenant for 6 mths, I didn't want the tenant so I put in an offer with a six month settlement they agreed to 4 month settlement ( never ever thought they would accept). I paid 189k when I settled my REA said to put it back on the market at 230k and see (that equates to 10k per month) as the one next door (slightly bigger and partitioned to be 2 rooms) just sold for between 250-270k. Maybe I should have, but I have decided to hold / rent it for another 6 months and see what the market is like.

The one I purchased a week later (May 06) for 180k I sold after a 7k reno in Aug 06 for 240k - I actually brought this one with very little DD (I had just started - quit work and all that and was a little over excited) and really thought I had stuffed up - impossible to do in the Perth Market then as the values just kept rising - 32k profit LUCKeeeee:D

I have just settled on an identical apartment (size layout style) in the building next door, this complex has a pool / tennis / full time caretaker / and about to have a reno on the common areas and it has views from the Hills to the city. I got a good price of 209k

This is where the change in the air is, in May you were lucky if the prop had not sold B4 the home open or B4 you got to the home open, 1 place a looked at had 11 offers at the 1st home open. and now - The one I just brought had been on the market 5 weeks and they had dropped the price x 2 and then accepted a lower offer from me. - wouldn't have happened 3 months ago, I would have paid asking price. I also found one in the same building that had been on the market for 70dys. - real messy one tho - I put a lower offer on that as well, he's holding out for the higher price - I doubt he will get it.

And, I have put a couple of really low offers in 20% below asking and at 1 st they said no and then 2 days later ringing me back lowering their asking. wouldn't have happened 2 months ago.

That my 4-5c worth

Celeste
 
alexlee said:
Anecdotally, there seem to be more listings and properties are staying listed longer.
Alex
Click to expand...

I can attest to this. I've just sold a property in Perth (settles today) and it was on the market for over 3 months. Talking to a few agents, their feeling is that development and subdivisible blocks are being snapped up, but that green title blocks with no development potential are stagnating.

Even the subdivisible ones seem to be hanging around now. 6 months ago, you couldn't get a subdivisible block for love or money, but now there are signs popping up showing the subdivisible blocks, and they are staying up longer.

My gut feeling is that there are a few suburbs that are still racing ahead with a lot of sales (and they are generally more exclusive suburbs) and this is pushing the median price up. Looking out in the suburbs, properties don't seem to be moving with the same pace.

I've got two houses that historically have been just above and below the median price respectively (for about 10 years now, and based on my figures for obtaining finance over time), but based on the For Sales in those suburbs, there is no way that they are close to the $492K median price. Maybe somewhere around the $400K (though I would have to do some more research to verify this).

I'm thinking that the Perth Median price has been skewed by high turnover in a few high value suburbs, and low turnover everywhere else, though I'd be happy to be shown to be wrong.
 
Thanks for the update Celeste,
Sounds like you have a working plan in action.
Good luck with it.!!

With regard to the mining stuff, I guess my viewpoint and therefore my plan is based on a 2 to 3 year horizon.

There is no question that this mining boom will eventually end.
But based on the current construction phase being up to 10 yrs with what is currently underway, I am sure that my 2 yr horizon is both safe and in fact conservative.
Some of this 'mining' boom is also energy related.
I don't think the energy market is going to to slow down for the forseeable future. Even if the commodity side of the market goes off the boil, the energy ( oil and gas) industry will just keep growing.

I am a firm believer in the China and India factor, and I also think there will be others that will join the fray.

This level of sustainability will mean that property in Perth and WA will not 'bust' or stall anytime soon.

The only way for land prices to go backwards would be for the govt to reduce their cost impost on land and development, and for building costs to go down.
Otherwise the real COST of property will underpin the curent market price.

When you look at the backlog of houses required to house people in both the metro and regional areas, it will probably take 2 to 5 yrs to complete these.
Therein lies the opportunity. Basic demand for roofs over peoples heads.

kp
 
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