Will the WA/Perth Housing Market Bubble Burst?

[Kennethkohsg]

Dear All,

1. Today, the West Australian Newspapers' front page main headline reads as "WA Housing boom starts to stumble".

2. The same report goes on to say,

a. ...the sector is slowing now.
b. ... that the market is (now) on the turn.
c. ... REIWA figures for August shows property listings surge 60% to 6,500 since April.
d. ... slipping demand for rental properties.
e ... And house prices in some regional areas, including Busselton, Northam and Bridgetown-Greenbushes and the greater Fremantle area had dropped in the June quarter.


3. In this weekend Property Report lift-out in the West Australian Newspapers, 8 industry experts were reportedly consulted and they have all made their own predictions as to what will happen in the Perth market over the next 12 months.

4. While most of them have expected the Perth property market to slow down to single digit growth rate, to about 3%-5%p.a, they are basically still optimistic about this same property market because of its present strong housing demand and underlying strong market fundamentals.

5. Mr Lino Iacomella, Senior Policy Adviser. Property Council of Australia (WA) even suggested that the recently built houses in the new home sector will (continue to) sell at a premium and that the higher priced housing sector will contiinue to see strong demand for luxury properties as well as to expect the prestige property prices to rise further.

6. Mr Greg Rossen, President, REIWA also suggested that the housing price growth will continue over the next 12 months in the middle ring suburbs such as like Morley, Bentley and South Lake. Ms Marion Fulker, Executive Director, UDIA(WA), on the other hand, sees continued price growth in suburbs like Armadale, Swan and Kwinana.

7. Mr Brendon Ptolomey, Associate Director, Herrod Todd White Valuers, believes that the Perth property market will continue to enjoy healthy growth for the second half of 2006 as properties have continued to sell above their asking prices in July-August 2006 period.

8. Mr Gavin Hegney, Chairman, Hegney Property Group, does not see a drastic decline in the Perth housing prices over the next 12 months. He further suggested that for this ( drastic housing price decline) to occur, there would need to be multiple interest rate increases combined with increasing unemployment and the state economy entering into a recession as the last 3 major property crashes have all coincided with all these 3 contributing factors.

9. Mr Alan Langford, Chief Economist, HBOS Australia, was alone in suggesting that as long as commodity prices stay close to historical high, we are likely to see a prolonged period of flat prices in the WA/Perth property markets so as to allow household income growth to catch up with the recent "runaway" housing prices. Though highly unlikely, he does not totally rule out a "sudden" bursting of the housing bubble.

10. How do you see the WA/Perth property market heading over the next 12-24 months period? Is there presently a housing bubble in the WA/Perth property market in the first place? If yes, do you think that this housing bubble will burst over the next 12-24 months period? What are the supporting evidences/indicators behind your own views.

11. For your comments and further discussion, please.

12. Thank you.


Cheers,
Kenneth KOH

 

[BOO]

Hi Kenneth,
yes, yes and yes the WA market is peaking.

Why? Interest rate increases, housing affordability and ongoing negative news reports.

I think we should all be reading Kieran Trass' book "Grow Rich with the Property Cycle" this really sums it up in a nutshell

 

[Ausprop]

these doom and gloom headlines always suck me in - and then when I read the article the comments never seem to reflect the headline. The over all summary is pretty much 'yeh things will return to the normal 10 to 15% eventually' which really doesn't seem like a stumbling market to me!

 

[stretchy]

Even though I am a bear on the Perth market, I still have not seen convincing evidence it has turned yet. What I am worried about is the speed that it could turn - i.e. by the time you confirm the downtrend its already too late. Kieran diud mention in a previous post that markets tend to slow down leisurely, so there may be plenty of time to get out if desired. I'm not as optimistic as he is.

When the sun comes back out we shall see if this is simply a seasonal lull in the market or the end of the party. Headlines such as the "WA Housing boom starts to stumble" are a self-fulfilling prophecy as it kills the fever in the marketplace which is sustaining the massive price rises at present. What happens when all those investors hitting the home-opens decide that its too risky?

 

[itinerantotter]

My brand new free hold Condo next to an MRT station cost me $387,000 (SGD). While I am living in Singapore I am living in it.

Hi, Mark

I, like Kenneth, am keen to know in what circumstances you purchased Singapore property. If you are indeed an Australian expat, I believe there are some limitations on purchase. Hope you can enlighten us.

Cheers

 

[Kennethkohsg]

Take note Perth people - property can fall and do so for LONG periods of time.

++++++++++++++++++++++++++
Dear Mark8888,

Care to further share and elaborate your own experiences of the prolonged declining Perth property market in the past?

This is for our own learning and self-education purposes, please

Thank you.


regards,
Kenneth KOH

 

[Mark8888]

Kenneth,

I am not a professional investor like you. I am also not a multiple-IP investor unfortunately. Just 'Mr Average'. Certainly I don't know more than anyone else.

For what it is worth, (probably very little) it is like another poster on this site said a while back. Use common sense. Use your instinct.

And common sense and instinct says Perth must be at or near the top:

1. Affordability Issues.
2. Mining Boom can't go on forever.
3. Rising Interest Rates.
4. Last few years well out-of-line with historical norms. All markets
return to the norm eventually.

Moreover, in a cashed-up position, you have all the other opportunites that come along available to you.

Funny enough, I arrived in Perth in August 1989. I cursed that I didn't get my **** over there a year earlier. Why? Cause August 1989 was the top of a property boom in Perth. People were camping out for blocks - all sorts of crazy stuff was going on. Camping out for blocks was unheard of before! Yep, really! I really thought I had 'missed the boat' arriving at that time - I guess that is a point for the current batch of frustrated first-time home buyers. Bide your time. Things change and new opportunties in life come along. I do remember being frustrated for a long time seeing prices for South Fremantle being in the 100's when a year or so earlier I could have got a place for $50k!

However, history shows that by 1993 Perth property was still around 1989 levels - some 5 years later - with returns returning to historical norms. Even 1993 through to 1997 was 'pretty ordinary' - during the time Kenneth was making his huge gains in Singapore.

And OK, for lots of good reasons, Perth has now had it's time 'in the sun' thanks to the commodity boom. But the historical norms will cause a flattening of the Perth market for some time. Five years? Who knows. Last time it was 1989 - 1993. Just based on money being deposited in the bank, compared to most rental yields in Perth, you need around 5% capital growth just to break even (compared to money in the bank).

So the way I look at it (not being a professional or super-smart investor) is that being in cash, and in a position to take advantage of many other potential investment opportunities that will surely present themselves over the 5 year time frame, I think I can make more money at this point being out of (most) Perth property.

Of course everyone situation is different also. I am in a position, if I choose, to sell AUD, and buy other currencies, and invest, without having tax issues. So, for example, if I invested in a Singapore-based stock or share-trust (for example) I would only have to make 75% of the return of an Australian investment to be no worse off - because of not having a 'greedy govenment' with it's hand out all the time.

Anyway....that is my thoughts. In 5 years when the average Perth house price is $1m, I will at least be able to say I kept one!

 

[Kennethkohsg]

these doom and gloom headlines always suck me in - and then when I read the article the comments never seem to reflect the headline. The over all summary is pretty much 'yeh things will return to the normal 10 to 15% eventually' which really doesn't seem like a stumbling market to me!

*******************************
Dear Ausprop,

1. Not when purchasers are starting to cancel their housing sale contracts midway before their scheduled legal completion date, with more homes coming on for sale together with a 60% increase in house listings for sale to 6,500 units since April 2006, properties taking much longer time to sell and the 1st time homebuyers being priced out from the present market and falling demand for rental properties.

2. Not when the building industry was last reported to be operating at full capacity and taking some 24 months to complete a new house some 6-12 months ago, it now takes some 7 months construction time to build a new house and with many builders having excess capacity and desperately looking for new building jobs.

3. Yes, while I can agree with you that the annual growth for 2006 is likely to slow down to an average around 10%-15%p.a growth rate in 2006, after a 34%p.a jump in the house price for the year upto June 2006, I do see a much slower single digit growth or/and even negative growth for 2007 and 2008 respectively.

4. Given time and continued negative news publicity about the slowing down of the Perth property market, I do expect the present news headlines to become its own self-fulfulling prophecy in the near future. This is especailly so if RBA were to further introduce another 0.25%-0.5% interest rate increase in November 2006 in order to properly cool down its underlying inflationary trends within the Australian economy, in the near future.

5. For your kind update, please.

6. Thank you

regards,
Kenneth KOH

 

[Kennethkohsg]

***************************
Hiya Stretchy,

1. Didn't you recall that Paulie and the other RE agent members have already reported low traffic and poor attendance at their open house displays recently?

2. I think things are already happening on the ground.

3. That is why a number of sales contracts were recently being cancelled and the properties put back on the market for sale again, after the recent interest rate increase in August 2006.

4. For your kind update and further comments/discussion, please.

5. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

Kenneth,

It is sad to have to admit it, but much of the Perth market situation comes from a state/federal govenment system that is highly ineffective. I read an article somwhere recently stating that Perth was the best planned city in Australia. Really? What happened to the planning for the growth and the effective release of land for development? It is a crying shame to look at the ineffective government, planning, and ******** that goes on. In a country that has so much available land, it is a disgrace that the situation with Perth land has got to the point it has. Basically we have all profited from this ineffective government and planning, but at what social cost/implication....? I am digressing, but having just watched the Singapore PM's National Day speech on TV tonight, I am yet again impressed with the vision and leadership that this country displays. The situation in Australia is just shameful....but as much as mining compaines go from boom to bust, Australia will continue to have it's pronounced cycles because it seems unable to manage and govern effectively. Sad. But true.

.

************************************
Dear Mark8888,

1. One man's meat is another man's poision.

2. Say what you like, Australia has continued to attract more than 140,000 immigrants to settle down on its shores each year.

3. This statistic alone speaks volumes for Australia to me!

4. Just like you are happy to be in Singapore, so am I also happy to be in Australia too;- as I am able to enjoy its fresh and clean ocean air, to have my own time and privacy to leisurely walk along the beaches, watch and enjoy the beautiful sunset and smell its flowers and hear the birds chirpping beautifully away each evening... and finally to have my own landed properties here so as realise my own life dream!

5. For your kind update, please.

6. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Kenneth,

Will prices fall though? Interesting, but in the supberb that I sold in May, 50% of that entire suberb is owned by investors. Now, if things were to get bad, those investors are likely to consider selling. Quite a different situation to when everyone owns their own home only - in bad times you try and hold on - given that you need somewhere to live. The sheer number of property investors of recent years, increases risk - because if things do start to go wrong (e.g. more interest rate rises than currently expected) - then the downside risk is much greater. Under this scenario Perth could fall 20% no problems.

*********************************************
Dear Mark8888,

1. Where's about is your property located? Which suburb are you referring to? I will be most interested to know for myself.

2. In principle, I do agree with your a/m thinking and assessment here.

3. However, I see opportunities from the same risks which you have highlighted above.

4. For your kind update, please.

5. Thank you.

Cheers,
Kenneth KOH

 

[Kieran]

I think we should all be reading Kieran Trass' book "Grow Rich with the Property Cycle" this really sums it up in a nutshell

Thanks Boo. I know Kenneth KOH is an avid follower of my research into property cycles too, and in light of the Perth market I understand why you would both be pleased you read my book! I'm glad you actually acted on it instead of letting it gather dust on a bookshelf!

My international research has been extremely beneficial to understanding property investment principles that apply in all free market economies but my research is about to take a new twist as I travel internationally to not only expand my research into more countries but also put in practice overseas what I have successfully implemented in NZ (i.e. building my wealth by counter-cyclical property investing and also trading properties in what I can identify as real estate hot spots)

To start with I am off to the UK in October this year and plan to be in the USA, Japan, Europe and Australia in 2007.

I intend to take a nationwide Australian tour to further my research and de-mystify the concepts of the property cycle and real estate hot spots (my new book due for release in a week is called "An Insiders Guide to Real Estate Hot Spots" - Penguin Books, and is already selling in the USA and the UK on Amazon evn though it's not released there for many months yet, and the first print run is pretty much pre-sold already). I was extremelyy privileged to have my associate Dolf de Roos write the foreword for my new book and to sum up his thoughts I quote what he says about my analysis of hot spots... "His analysis is priceless".

Boo, I look forward to meeting you in Perth.
Kenneth, I am keen to catch up with you before I get there as with the right data we can fairly precisely ascertain how much room is left to boom in Perth.

The Perth boom is certainly shaping up to be pretty spectacular...

 

[Ausprop]

"1. Not when purchasers are starting to cancel their housing sale contracts midway before their scheduled legal completion date"

who on earth is doing that? they would be mad!

"with more homes coming on for sale together with a 60% increase in house listings for sale to 6,500 units since April 2006"

this is still a huge stock shortage by any comparison - some 50% lower than norm

"properties taking much longer time to sell and the 1st time homebuyers being priced out from the present market and falling demand for rental properties."

not sure about that but it doesn't sound logical - if anything a cooling sales environment should see a pick up in demand for rentals, particularly as there is no reported change in migration rates.

"2. Not when the building industry was last reported to be operating at full capacity and taking some 24 months to complete a new house some 6-12 months ago, it now takes some 7 months construction time to build a new house and with many builders having excess capacity and desperately looking for new building jobs."

phew... one guy advertising "7 months" doesn't fix the problems of the industry overnight and I am yet to find a desperate builder - if there is I am signing up to build a new house (have been waiting years for it to happen).


"3. Yes, while I can agree with you that the annual growth for 2006 is likely to slow down to an average around 10%-15%p.a growth rate in 2006, after a 34%p.a jump in the house price for the year upto June 2006, I do see a much slower single digit growth or/and even negative growth for 2007 and 2008 respectively."

who really knows what will happen in 2008?

"4. Given time and continued negative news publicity about the slowing down of the Perth property market, I do expect the present news headlines to become its own self-fulfulling prophecy in the near future."

probably - be it a boom or bust it doesnt matter as long as there is somethign going on to sell a paper.

"This is especailly so if RBA were to further introduce another 0.25%-0.5% interest rate increase in November 2006 in order to properly cool down its underlying inflationary trends within the Australian economy, in the near future."

The Sydney market is deflating and it far outweights the Perth market by size - the ineterst rate rises have nothing to do with the Perth property market. With reports that the next raise (if indeed there is one) will be the peak of the interest rate cycle it leaves the Perth market in a pretty good position

 

[kero]

just to share a bit... went to look at two properties this weekend for myself as in a place to live... a two bedder in maylands was sold on the first opening day... the present occupants are the owners... they are selling their unit and intend to rent it back from the potential purchaser.

then in northbridge, a new apt for sale at a bargain (so i thot), when i arrived, there was another person already doing her bit (i'm sure she is interested in it) peeking thru the ground floor apts and surveying the surrounding and all.

saying all that, i have been surfing realestate.com for the past two months and realised that a few properties are back into the market for sale again.

 

[Kennethkohsg]

saying all that, i have been surfing realestate.com for the past two months and realised that a few properties are back into the market for sale again.

**********************************
Dear Ausprop,

1. While I understand what you are saying, Kero's post seems to indirectly give support to what I am saying regarding housing contract cancellation, to a certain extent.

2. I think that some investors are starting to get a bit "nervous" investing due the various reasons like risks of a third interest rate increase in 2006, first time negative news publicity about the WA/Perth booming property market ending soon, issue of housing/land affordabilities, fear of having to catch a falling knive eventual with their new investments etc.

3. For your kind update and further comment/dicussion, please.

4. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

"with more homes coming on for sale together with a 60% increase in house listings for sale to 6,500 units since April 2006"

this is still a huge stock shortage by any comparison - some 50% lower than norm

*****************************************

Dear Ausprop,

1. I do agree with you to a certain extent.

2. However, please also realise that the present favourable situation can quickly end up into an over-supply situation with new stock of housing being completed and coming into the market at the same time in the near future, as in the past property booms in 1994/1995 period.

3 Please see Stretchy's post under the thread, "Perth Madness", which I have extracted here for our joint easy reference purposes, as follows:

**********************************************************
Originally Posted by stretchy

The great housing shortage:
http://www.reiwa.com.au/Art/Art-Public-View.cfm?PageUUID=a6303a0ef1afn$DE$BD$-13-Aug-2006-04:45:18:285&Id=7320

Periods of low stock levels are common, but normally these periods are quickly followed by steep rises in the number of available properties as sellers take advantage of the market. In the 1994 housing boom, stocks in Perth fell to 6,000 homes but by 1995 there were almost 20,000 homes for sale.

So large shifts in supply can occur quickly

************************************************************

4. For your kind update, please.

5. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

"2. Not when the building industry was last reported to be operating at full capacity and taking some 24 months to complete a new house some 6-12 months ago, it now takes some 7 months construction time to build a new house and with many builders having excess capacity and desperately looking for new building jobs."

phew... one guy advertising "7 months" doesn't fix the problems of the industry overnight and I am yet to find a desperate builder - if there is I am signing up to build a new house (have been waiting years for it to happen).

++++++++++++++++++++++++++++++++++++++++++++
Dear Ausprop,

1. While I agree with the logic of your argument as well as your ground sentiments to a certain extent, I also wish to point out that as one of the largest builder groups in the Perth single residential property market sector, the fact that Dale Alcock Homes is advertising in this manner much unlike its previous market advertisements, speaks for itself.

2. I am given to further understand that some of the smaller builder groups were facing cashflow related problems during this boom period with some of them actually being bought over by the bigger builders, as a result.

3. For your kind update and further comments/discussion, please.

4. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

"

"3. Yes, while I can agree with you that the annual growth for 2006 is likely to slow down to an average around 10%-15%p.a growth rate in 2006, after a 34%p.a jump in the house price for the year upto June 2006, I do see a much slower single digit growth or/and even negative growth for 2007 and 2008 respectively."

who really knows what will happen in 2008?

As usual, TIME will tell in due course.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

"This is especailly so if RBA were to further introduce another 0.25%-0.5% interest rate increase in November 2006 in order to properly cool down its underlying inflationary trends within the Australian economy, in the near future."

The Sydney market is deflating and it far outweights the Perth market by size - the ineterst rate rises have nothing to do with the Perth property market. With reports that the next raise (if indeed there is one) will be the peak of the interest rate cycle it leaves the Perth market in a pretty good position

***************************************

Dear Ausprop,

1. I have noted your point.

2. However, I think that the RBA's open argument for the interest rate increase has to do with local inflationary trends emerging and excessive spending and private borrowings within the local Australian economy for personal consumption related reasons.

3. It has nothing to do with the present Perth housing boom or the NSW's deflationary economy, though i believe that RBA probablywould have taken all these factors into their considerations before they made the decision to increase the interest rate.

4. Furthermore I think that you seem to have also missed the outgoing RBA Governor Ian McFarlance's underlying argument for the interest rate increases i.e the risks posed by the global inflationary trends outside Australia, and existing constraints faced by the Australian Economy which is presently operating at full capacity already.

5, I am not sure why you should think that the next interest rate increase is going to be also the peak of the interest rate cycle, at this point in time.

6. Why is the logic and basis behind your views here? Care to further share with us, please?

7. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

"properties taking much longer time to sell and the 1st time homebuyers being priced out from the present market and falling demand for rental properties."

not sure about that but it doesn't sound logical - if anything a cooling sales environment should see a pick up in demand for rentals, particularly as there is no reported change in migration rates.

***********************************************
Dear Ausprop,

1. I can see the logic behind your thinking.

2. However, I also wish to point out that a number of the present investors entering the market at this stage of the property cycle are actually parents trying to buy a second house not for themselves to live in, but to hold in trust for their underaged children as they fear that their children would be priced out of the housing market in the near future.
This has probably caused the "excess" rental properties to surface up, as a result.

3. I have personally come across a number of parents having this kind of thinkng myself as well as from some of the ground feedback which I have gathered during some of the land balloting exercises which I have attended.

4. The existing market demand is further distorted by the artificial shortage in the housing supply created in the market by house owners trying to hold onto their properties when they are likely to sell them off under the normal market conditions as well as by the slow land releases by the State/Local Councils level, to meet the current market demand.

5. I believe that the situation will further improve over time as the market demand are better met and the housing shortfall pressure started to ease off in the immediate near future.

6. For your kind update, please.

7. Thank you.

regards,
Kenneth KOH