Will the WA/Perth Housing Market Bubble Burst?

[alexlee]

Can you please explain this further?
My interpretation is - you are borrowing further against your IP and using those funds elsewhere?

I'm interested as I have a couple IP in Perth ($254,000 interest only on one house in edgewater) - valuation now around $350,000. I also owe $144,000 on my PPOR. Could I borrow more on the IP (say $50k) and pay that off my PPOR loan? Therefore maximismg my tax deductions and claiming $304,000 on the interest only loan . Sounds to good to be true?

Or more likely that $50k I use towards another IP? Therefore funding another property from this $50k ?? Assuming there is equity in the other investments that the bank is happy with.

I've got lots more quesitons and have enjoyed reading the many informative posts on here!

Hi, Dan, and welcome!
No, in your case you can’t pay off the PPOR loan with an IP refinancing. Tax office doesn’t let you do that, because the ‘purpose’ of your refinancing would not be for income producing purposes.

Your LVR is already 72.5% ($254k on $350k). If you refinance to 80% you can draw $26k. Refinance to 90% LVR (you’d have to pay LMI) and you can draw around $60k. You can then use it to buy another IP, shares, whatever. You can deduct the interest on this as long as what you buy produces income (so a car or holiday, for example, would not be deductible).

The standard buy and hold strategy is to buy a place, refinance when equity becomes available, and buy more IPs.

Read through all the posts first: you’ll find the posts probably answer most of your questions about the general strategies.
Alex

 

[gooram]

thedon,

Unfortunately it is too good to be true , if you spent that 50 grand on paying off your own home, the borrowings are not tax deductible.
If you put it towards another IP, then yes, the extra borrowings are deductible.
Just because you have the equity in your properties however, does not mean the bank will loan you more money... you still need to be able to afford to pay it back.
Cheers,
Gooram

 

[topcropper]

.

WA has been due for an increase in property prices for a long time and its economy has fueled Australia for an equally long time. Now in the last 5 years its just getting to the point where the state is reaping the rewards for its contribution.

If you disagree then take WA and its economy and resources away from the Australian economy as a whole and then do the maths.

<KS>

Your not wrong there KS. Agree fully.

 

[Kennethkohsg]

Just wondering if there are some gusty members still investing at this stage of the property cycle in the Perth property market?

If so, what are your own investing strategies and safeguards used to minimise one loss should the present boom eventually bust in the near future?

Looking forward to members' sharing for my own further self-education, please.

Thank you.

Cheers,
Kenneth KOH

 

[gooram]

You certainly seem to be quite sure that the Perth market is about to "bust".
Can you clarify what you are predicting?
Surely we won't see the same level of growth we have seen over the last few years, but a bust would imply negative growth would it not? Rather than mere soften of price increases?

Not sure how many residential investors are active in Perth right now, but certainly the developers and the government are investing heavily in Perth right now. I admit there's a big difference between the types of investment I'm talking about, but would you agree that such a level of investment in infrastructure, commercial and industrial are all good signs for, at worst, a softening of price increases rather than a market "bust"?

The point has been made before, that despite the trend of the market, there are markets within markets that can continue to "buck" it.

I wouldn't write off the option of investing here, I'm not in a position to do so right now, but it's a time for getting back to fundamentals, look for scarcity, location, land content and you'll continue to do well.

 

[kero]

govt. and developers projects and developments are long tern committments. If contracts are signed and had approval to advance in/during the boom, these projects will still continue to reach completion... a half finished building or infrastructure is as good as no building or bridges or roads at all... my 2cts

anyone been to any auctions after the interest rate rise? are they still drawing active bidders or many 'watchers'?

 

[Kennethkohsg]

Dear Gooram,

1. I made no such ("bust") prediction.

2. I remain open-minded as I watch how the Perth property market next evolves.

3. If you have read all my posts, you will know that I also remain open-minded as to whether there is a housing bubble in the WA/Perth propefrty market or not, in the first place.

4. While I believe it is quite likely for the Perth property market to slow down and turn by itself eventually, I do not rule out another short sharp increase in the housing prices during this coming Spring-Summer period.

5. Please note that I still have some property interests in the Perth property market, though it has been significantly reduced as compared to before.

6. BIS Shrapnel has predicted a sharp slow-down to 2%-3% pa growth in 2006/2007 for the Perth property market. Will this prediuction come true? Only TIME will tell in due course!

7. I am trying to learn from the more experienced members how to invest profitably at the top of the property cycle and the kind of safeguards they employ to mitigate their potential losses and other related risks.

8. For your kind update, please.

9. Thank you.

Cheers,
Kenneth KOH

 

[Kennethkohsg]

Dear All,

1. Please see the following article:
+++++++++++++++++++++++++++++++
Business Times - 12 Sep 2006

Commodities bust under way

(LONDON) The drop in oil, gold and other raw materials since May is signalling an end to the five-year bull market in commodities as global growth slows and demand falls.

'The mega-run for commodities has run its course,' says Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world's biggest securities firm. In May, he said the surge in oil and metals was a bubble about to pop.

Since then, the Reuters/Jefferies CRB Futures Price Index has fallen 12 per cent from a record, more than enough to qualify as the first so-called correction since the rally began in 2001.

The Goldman Sachs Commodity Index, after gaining for four years, has lost investors 5.1 per cent in 2006. Gold and sugar are in a bear market, defined as a price drop of 20 per cent.

Commodities are plunging due to reduced growth in some of the world's largest economies.

The US Federal Reserve's report on economic conditions in each of its 12 districts last week indicated consumer spending rose 'slowly'.

Expansion in China, where growth of 9 per cent in the past four years caused raw-material orders to surge, may be curtailed as the central bank raises interest rates and curbs lending.

Some strategists remain bullish. James Gutman, senior commodities economist in London at Goldman Sachs Group Inc, says the commodities losses are nothing more than 'cyclical fluctuations'. - Bloomberg
++++++++++++++++++++++++++++++++++++++

2. For your kind update/further discussion, please.

3. Thank you.


regards,
Kenneth KOH

 

[bradje]

Dear All,

1. Please see the following article:
+++++++++++++++++++++++++++++++
Business Times - 12 Sep 2006

Commodities bust under way

(LONDON) The drop in oil, gold and other raw materials since May is signalling an end to the five-year bull market in commodities as global growth slows and demand falls.

'The mega-run for commodities has run its course,' says Stephen Roach, the New York-based chief global economist at Morgan Stanley, the world's biggest securities firm. In May, he said the surge in oil and metals was a bubble about to pop.

Hi Kenneth,
Enjoy your posts. Very informative.

FYI...Pls read what others say about Stephen Roach
http://www.somersoft.com/forums/showthread.php?t=27894

JB

 

[kph]

Maybe the sales have stalled at the median price range ??? ( ie..around $450k)
The top end of town is still flat out.
Just heard this evening of a subject sale on a property in E Fremantle for $1.2 mil ( subject to purchaser selling their property) which included a 48 hour clause.
The purchasers subsequently received an offer on their place ( also E Fremantle) for $749k.
Next day, the 48 hr clause was invoked coz the first vendor received another offer on their property.

Sounds like its a bit patchy in Perth ???
Any other feedback from anyone on the ground there??

Kevin

PS..Commodity prices are having a breather imo...

 

[Ausprop]

haven't toucvhed stocks for a long time as everything I touch turns to lead, but BHP is looking good to me

 

[paulie]

I am still buying property in Perth, only dried the ink of a three unit site in Forrestfield for $450 last week.

However, I am definately seeing slow down signs re buyer inquery levels. Not as many people visiting the websites, home opens or begging for first chance to see up coming new listings. Looks like I am going to have start earning my pay soon and start selling some of these over priced turkey listings, darn it.

Anyway, what ever is happening, i can tell you one thing - It ain't booming no more across the board. I do agree some areas and some suburbs and some property types will continue to do very very well, but the market place hasn't got that same rosy glow it had 6 months ago, or even 3 months ago.

Just my 2 cents

 

[Kennethkohsg]

Dear Paulie,

1. Thanks for your ground feedback.

2. It helps a lot for my own market monitoring purposes and for my own self-education.

3. Thank you.

Cheers,
Kenneth KOH

 

[alexlee]

A simple search for 3 and 4 bed houses in Cooloongup shows a LOT more houses for sale compared to a few months ago. My agent said that they have a lot more properties for rent as well. Indication that the investors are starting to sell?
Alex

 

[Kennethkohsg]

Dear Alex,

1. I believe so.

2. The same thing is also happening at the Anchorage Estate at Rockingham too.

3. I believe that the market is now starting to slow on the ground after the second interest rate rise in August 2006.

4. For your kind update, please.

5. Thank you.

Cheers,
Kenneth KOh

 

[asdf]

Hmmm and there will be a lot more completions coming onto the market too over the next year as the builders catch up in their work. No surprise really when 42% of lending in WA is going to investors. Every TD&H must've thought all these new people moving to Perth must need a place to live. Better get them LOCs locked in.

Re developing - check this out.

http://www.realestate.com.au/cgi-bi...eader=&s=qld&snf=rbs&tm=1158325032&c=45494123

The developers paid about $575k 2+ years ago for the 1000m2 site and put up 5 townhouses. 3 free standing and 2 joined. Freestanding selling for around $395k mark and joint for $375k. You can see sizes for yourself. If you do the calcs I don't think theres too much fat in there for the risk taken. Its a shame the market slowed down.Surely am not thinking of multi unit developments in Oz in any real hurry. A better strategy might be to assist cash strapped developers by removing such "problem" units from them....

 

[kero]

re:- off the plans apartments

how about the city apartments in perth? are they a bit overpriced at the moment, especially off the plans ones?

 

[alexlee]

http://www.realestate.com.au/cgi-bi...eader=&s=qld&snf=rbs&tm=1158325032&c=45494123

The developers paid about $575k 2+ years ago for the 1000m2 site and put up 5 townhouses. 3 free standing and 2 joined. Freestanding selling for around $395k mark and joint for $375k. You can see sizes for yourself. If you do the calcs I don't think theres too much fat in there for the risk taken. Its a shame the market slowed down.Surely am not thinking of multi unit developments in Oz in any real hurry. A better strategy might be to assist cash strapped developers by removing such "problem" units from them....

I have a 3 bed 2 bath townhouse in a complex of about 15 in the same suburb. Closer to the station (about 500m), but not as big and the fittings aren't as good. Got mine for $309k in 2004, and to be honest, it's been flat (probably means I bought it 10% above market back then).

I wonder how much these rent for?
Alex

 

[sheiks]

I have been speaking to RE agents in Warwick recently. Things have started slowing -with both sales and rentals. Sellers are not getting the crazy prices they were getting as recently as 3 months ago.

My IP was vacant for 6 weeks before I got a tenant. There are 2 houses round the corner from mine (which if available a few months ago would have had multiple applicants) -these have been vacant for almost 2 months now.

Hmm..

 

[Ausprop]

it would be a great result for Perth if the price growth could be stalled, otherwise popluation growth and economic expansion will be hampered by restrictive housing costs. vast tracts can be opened up in the Yanchep area and Stakehill areas hopefully (the new town of St Andrews and Amarillo, subdivison in baldivis, lakelands area etc), we just need the people and machines to turn the bush into estates. The goal would be 4 to 5 million people with a median price of $500k, bt the key point is that most of the peripheral stock would targeted to be around $300k, with the median being dragged up by the coastal and inner city stock. quality rather than quantity would be a nice achievement