The Property Mood in Perth - Feb 2011

Discussion in 'Property Market Economics' started by Steve Fitz, 26th Feb, 2011.

  1. Steve Fitz

    Steve Fitz Building Brokers Perth

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    Hi Guys,

    It's been a while since i posted so i thought i'd just relay for you what seems to be taking place in Perth at the moment both in RE and New Builds.

    The RE sector is mixed with some agents saying the first quarter is really positive with properties starting to move after having a significant lull in the last quarter of 2010. Perth market was flooded with excess properties being listed well above the average listing amounts. A lot of agents were struggling to get buyers and conditional offers were linking 1,2,3 then the last offer would fall due to no sale so all linked sales were falling.

    This effect exacerbated the RE figures that were being released in that there were buyers, but the conditional sales and banks tight lending impacted the market significantly.

    Atleast some RE agents are positive at the moment and on several fronts i'm hearing movement.

    For those that are wondering about our 2 speed economy, I, and many like me aren't seeing 2 speeds at all, it seems to be one speed. I think it's a result of the mining boom trickle effect not reaching our city as much as it did last time and it may still be another 12 months away before it kicks in (if it ever does). FIFO workers are not relocating to Perth as much as before according to Atlas Iron Director David Flanagan - who might be a small fish but at least he's an accessible fish :)

    From the new home building front theres stagnation in the lower end of the market with some builders recently handing out redundancies. This week i heard Plunkett let 4 people go and I know many sales reps in that field are struggling. Even the 7.5% discount offered by Dale Alcock isn't having much effect on sales and every other company is throwing packages at clients with little to no bites.

    The one new home building sector that IS moving right now is the cheaper 2 storey market with a lot of interest in the $300,000 mark (and lower if possible). From my own perspective this is a difficult market to enter as the quality level of these homes is really poor and not what most people expect. I think there will be a lot of disgruntled clients in 12 months when they move in and find they have cheap fixtures and fittings that are found in first home owners houses worth $125000.

    From the luxury end, a few builders have signed $1M+ contracts and new designs are starting to come online again. These jobs however don't hit the ground for 9-12 months so the impact on the construction sector is still way off.

    Rumours of a new FHOG abound and with the ABN group essentially championing the HIA now days there's a good push with government to throw some stimulus in.

    All in all, Perth feels poised to tick along slowly for the next 6 months with little to no impact felt by the mining sector. I don't see much changing in that time.

    What does all this mean from an investors point of view? Property in Perth is definately a buyers market still - either established or new builders are great. Lots of potential with sellers willing to negotiate. Building times are right down and prices are ultra-competitive. (From my perspective as a buiding broker that's what I do day in and day out and prices coming back from builders are lean).
     
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  2. craigb

    craigb craigb

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    well canberra seems to be coalating the most amount of homes on the market since the eighties , last year my wife and i had one or two to look at if you got their within the 12 hrs , but now they are just sitting and waiting , as i dont get the local paper i am not sure why this is, what are people reading/forcasting for these sudden for sales to be occuring :confused:
     
  3. Ausprop

    Ausprop Member

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    there seems to be a lot of interest in budget 2 storeys - must be from infill development and smaller block sizes in new releases? the perth market has always struggled to build 2 storey at a reasonable price and it is worth avoiding, even if it means paying a hefty premium for a bigger block. I don't know what the cost issue is - lack of competition with scaffolders or trying to do 2 storey in a heavyweight construction - thoughts Steve? its really annoying tho as i have one block that really should be 2 storey to get some ocean glimpses but the ridiculous cost of 2 storey has me tempted to go for a celebrations special!

    the perth market is suffering for several reasons...
    - IRs
    - sentiment
    - general economy stuffed
    - delay of the resources boom
    - hangover from the boom days

    if the resources boom becomes the mother of all booms then obviously it will go nuts - jsut depends who is right, bears or bulls. Agree next 6 months will be flat
     
  4. Intrinsic_Value

    Intrinsic_Value Member

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  5. craigb

    craigb craigb

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    i have read some other posts and dispite folks thinking its due to rate hikes , china bubbles and comodity booms or busts, it still seems to me the lady in the coffee room started a rumer , as their are few facts on why these homes are flooding the market , perhaps folks think they will change to the ASX of future SSX? market , and wish to cash in on the next years growth predictions , of which a war in libya might prevent , The future its always speculation untill it becomes history? :eek:
     
  6. craigb

    craigb craigb

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  7. Ausprop

    Ausprop Member

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    wow bad result! they came up from smallish beginnings and have gone from strength to strength. After the crash in property prices and the turmoil in OTP settlements it is little womder they are copping it. I note the comment about converting deposits to cash... sounds good but litigation over property contracts is protracted and outrageously expensive and I hope for their sake the buyer's deposit bond underwriter is still in business. The courts are already filling up with this stuff. here is the latest bit of fun with someone having a go:


    http://decisions.justice.wa.gov.au/supreme/supdcsn.nsf

    [2011] WASC 47

    sounds like an open and shut case (hence the summary judgement attempt) but nothing is that easy in law. This first nibble probably cost the developer $30-50k in legals? now the cheque books really have to come out.

    the apartments at leighton are about to rll out - if not already - more multimillion OTP losses down there and another bunch of people see their lives turned upside down with bankruptcy, not to mention the emotional and personal impact. A mates neighbour blew his head off a year ago over money problems. tough times.
     
  8. redwing

    redwing Progress Not Perfection

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    Thanks for that post Steve

    Great to get an update from someone who's "in the business".

    Apparently the number of properties now on the market rose again to almost 17,000 and median rents have risen?

    I also saw this recently

    House & Land Packages Perth: From $269,800 - helping combat affordability issues

    Land sales in Perth drop to 3-year lows

    Interesting story comments (as always a wide range of contributors :D) if you click on the link also

    [​IMG]
     
  9. tom32

    tom32 Member

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    Thsi is a great thread for someone looking at buying in new build suburbs with the possibility of building in stead.

    Can I just say that big cross on Sydney in the post above; Developer levies make it expensive to build is actually a positive if you invest in property.

    You have to assume they will stay in place of course under a liberal government (not a certainty but more than likely)

    Anyone who has bought a car in an economy where they are taxed heavily on the initial purchase would understand this simply gets rolled into the price of same when you sell it. Look at what you pay for a 1990 Toyota camry in Vietnam...


    On the two storey issues in Perth. I can only comment on commercial and multi unit residential but the formwork trade here in nothing on Melbourne or even Sydney. More often than in the east Steel composite or precast systems are used for suspended floors.

    Neither of these are suitable really for domestic construction (steel or precast) but I imagine not having a massive vertical construction side to the industry as Melbourne and Sydney have means that there is also a related skill set in short supply for domestic building.
     
  10. Intrinsic_Value

    Intrinsic_Value Member

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    yeah $35k position down to $17k.
    This will be a situation where i will not be dollar averaging downwards. At least not unless i see the directors fork out some serious moolar to buy more shares themsleves.

    I think two factors caused the massive drop:
    (a) management didnt alert the market to this. They stated in the latest update that the 2011 FY should be a good year, and this may still be the case, but they should have 'warned' the market that timing issues will impact on the first hald.
    (b) debt levels are rising and cash flow generation is poor (but again this could be a timing issue, debt goes up as the building is made, and then cash comes in when the building is settled).

    Anyway anyone with knowledge of Diploma group, i would appreciate any insights.
     
  11. Steve Fitz

    Steve Fitz Building Brokers Perth

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    Hi Aus,

    I still put it down to our love for double bricks and a suspended slab. Our two storey pricing is ridiculous when compared to Melbourne prices where they build them faster and cheaper by a mile.

    You can thank Midland and Metro Bricks (now Austral) for their great marketing campaigns back in the 60's & 70's who convinced us that double brick is essential.

    In seeing the devastation in NZ recently i'd hate to think what an earthquake would do here in Perth - we'd be flattened.

    As a side note; there are plenty of builders i'm dealing with who are trying to come up with alternative solutions for building but aren't getting any traction with sales.
     
  12. Steve Fitz

    Steve Fitz Building Brokers Perth

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    I haven't been watching Diploma specifically but the commercial sector is still very flat in WA. Many of the mid/small operators are struggling. Take this with a pinch of salt though as commercial really isn't my primary area.
     
  13. Steve Fitz

    Steve Fitz Building Brokers Perth

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    Nice article redwing - i can see a reduction in house sizes coming soon - back to the 2700x3000 minor bedrooms etc.. I've been whining about balconies to double storey homes too lately on my Builder and Display Reviews web site. If people knew the cost of these unused design features i'm sure they'd go without them (actually i think i'll do some calcs and add it to one of my blogs soon).

    It's interesting that Celebrations launched the 2x1's in Ellenbrook. I was in a meeting about 18 months ago when Dale Alcock was on the panel and he had a shot at the Hegney Group about their property valuations being so low for 2x1's because people struggled to get finance from the banks.

    Obviously Dale's been busy :)

    As a side note; with higher divorce rates and greater accessibility needed in our market i think it's fantastic that 2x1's are coming back. I think we'll see this as a trend very soon.
     
  14. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    a 2bed home in ellenbrook for $270k is meant to be an affordable solution?

    i think there's only 6 buses a day service that entire area, no train, no industry nearby, middle of goddamned nowhere.

    that's a trap - people focussing on the price and not the peripherals.

    i agree with Steve's comment - 2 speed economy has blurred into one.
     
  15. Kent Cliffe

    Kent Cliffe Momentum Wealth

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    I'll list some points from our internal all in market meeting last week:

    Buyer's Agents:
    - Areas of high supply still rising (Baldivis - Just under 40%)
    - Inner city supply bands ~1.5% - 3% (Steady)
    - Properties we had our eye on went under contract after 2-3 weeks (we've been able to wait longer for price reductions)
    - A few properties priced right and new to market attracted many at home open (some as high as 30 parties)
    - WA not out of the woods yet - we tip mild consistent growth later half of the year.

    Finance Broking:
    - New bank exit fees drop is public PR
    - lending criteria hasn't been relaxed so they aren't trying to lend more (just take business from other banks)
    - Update: CBA increasing LVR - maybe the start of real competition.
    - Mezzanine funding coming back for larger projects.

    Property Management:
    - Large increase in tenants looking.
    - Even high supply areas saw a drop or 4%+ in properties on market.
    - Rent increases coming but not as soon as media suggests
    - Executive rentals coming back big time (after almost falling off the radar post GFC)

    Development:
    - Smaller sites (duplex/triplex) on market are still not feasible for trading
     
  16. FormerLurker

    FormerLurker Nerf Herder

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    I have a friend working as a PM (Project Manager) at Diploma - I can't comment on the financials but I know they are busy (so lots of work on) but that may be due to actively chasing work and low margins I don't know.

    But at least they have some cashflow happening.
     
    Last edited: 28th Feb, 2011
  17. Aaron Sice

    Aaron Sice Seldom Seen Kid

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  18. Deena

    Deena Member

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    Aaron Ellenbrook now has great bus service every ten minutes during the day, next door Aveley's is non existant. Ellenbrooks shopping centre expansion opens soon, competition Coles, Big W and multiple other shops. Need another petrol station!!
     
  19. Aaron Sice

    Aaron Sice Seldom Seen Kid

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    well times certainly have changed - my friends live in Charlotte Vineyard and my folks in the Bridges and they always complain about the lack of bus service.

    the easement is still in place for the "train of procrastination" next to the Perth/Darwin highway. Ellenbrook won't see a train until that is AT LEAST underway.
     
  20. Ausprop

    Ausprop Member

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    seems to be a consensus builidng that "the australian residential property market" is about to enter the slump phase. Given that Perth prices are already off up to 40% is it conceivable that we could take another such whack? when i look at subiaco for example, what use to be say $2m is now say $1.4m, yet this is still way above prices of say 6 years ago (I can remember the excitement when prices broke thru the $1m mark). nothing to stop the same house reverting to its growth pattern or even overshooting first to say $800k then back up to its growth pattern of $1.1m ish???