I hope that I am doing this right!!!!
This is all really new to me and as the post say “im still finding my feet”. I have spent the last three days reading and re-reading all the forums that I can to gain as much info about investing as possible as well as reading Steves books and speaking to as many people about investing as I can.
My Topic is “why WA”. My meaning behind this – “why are people investing in WA”. Properties are being sold before they are being listed and agents are now putting “expressions of interest” instead of asking price because sellers seem to have the market. I know that we are in the midst of a mining boom but that seems to have inflated the prices of all house/units/land etc. Is WA really a good place to invest at the moment. I just did a search for Queensland under $200K and there were quite a few under this price that seemed reasonable – (not +CF though). I dont know Queensland that well – though I would like to, and would love to hear from anyone that can point me to the right area to be looking at or some reference material that I can use. Like I said I’m a “newbie” and need all the help I can. Please help me!!!!
Julie [thumbsupanim]
Hi Julie,
The WA property market at the moment (mid March 2006) very much reminds me of Melbourne, Sydney and Brisbane ~ 3 years ago when people were paying too much for too much in the mistaken belief that property always goes up, and as quickly as it was at the time.
I believe a similar scenario is playing out in WA at the moment as ‘the herd’ starts reading some of the headlines in the press and sees the nightly news and decides that they too will start investing so that they can make as much money as the press is highlighting.
For example real estate agents have rung me and asked if I was interested in selling a couple of my properties this week. In one case they indicated a price $30K higher than 3 weeks ago was acheiveable and in another a property has been listed at $80K higher than any other comparable sales in the same complex.
In another case a REA rang a friend and said that he could sell a friends property for $60K more than it was valued at late in 2005.
Often the herd gets in at (or close to peak) and then watches as the value of their property stagnate or diminish in the short term.
For me I am investing back in Queensland – while I do not expect to make a killing, good research and a long term perspective gives me room for comfort.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Thank you again Derek.
I am glad that my thoughts on the WA market arn’t alone. I am a bit worried about the property market here at the moment so I too might start looking somewhere else where the boom is yet to come. Thank you for your respone – it is valued highly[thumbsupanim]!!!!
Regards
Julie
Originally posted by Derek:In one case they indicated a price $30K higher than 3 weeks ago was acheiveable and in another a property has been listed at $80K higher than any other comparable sales in the same complex.
Hi Derek,
Just wondering if you would contemplate selling if we think this WA market is going to overshoot and will most probably pull back 15-20% like in Eastern states. Plus you’ll have to hold it for another 5-6 or so years before the next cycle starts again.
Just using simple sums here. Say you could sell a property for $500K now, it drops to around $425K in 2 years time then you have to wait 5 years before it starts moving again or perhaps 7 to get back to $500K (which is not unrealistic when you look at property bear markets in Qld, Syd and even WA in various times during 80s and 90s plus they say this is a resources boom you get only once every generation). And you wear about $5K a year conservatively in negative cash flow to hold the IP.
So ignoring time value of money, thats $35K cost in 7 years. Which means you would now need to sell for $535K just to be indifferent to selling now. 7 to 8 years wait before the next cycle while capital sits idlely… hmmm… I know there are loads of assumptions here but are any WA investors thinking along the same lines…?
ASDF
Hi asdf,
I would never say never but I am pretty comfortable in the belief that there is still some time to run in Perth it is just that at the moment it is not the right time to be buying (without lots (and lots) of good research) because of the irrational behaviour of so much of the market.
I might also add that John Edwards (Residex) has said that Perth has around 18 months to go. It will be interesting to see how the prediction stands up.
In the main I have a long term picture and I have locked in recent valuation increases by ramping up my lines of credit. These lines of credit have been structured for personal and subsequent investment use and include a ‘spare’ line of credit to cover loan repayments in the event of my world going ‘pear shaped’.
This way I should not need to revalue if the market drops or incur a ‘margin call’ effect on my lines of credit.
I would also say that at the moment my portfolio is effectively paying for itself apart from rates notices. In recent months we have increased rents (including those in Qld) by around 10% with more to come as subsequent leases expire.
But as Peter Spann says if you get an offer toooooo good to refuse then maybe.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Tajee & others,
As a Westralian, my comments and feeling on the market are based on what I am seeing and hearing everyday. The resources boom is having a major effect over here – virtually verywhere I look the level of activity is frenetic. And I’m not just talking residential housing…industrial and commercial buildings and new businesses are being established every day. I drive through several new and developing industrial/commercial area’s on my way to/from work and the growth is staggering and that means jobs. Jobs = population growth = demand for new and established housing.
Having said that, sooner or later the new resource and companies servicing this sector will have taken up their full workforces, demand for new housing will have caught up and the boom will come to an end. When exactly that will be I can only go on the 12-18 mth prediction that smarter people than me are saying. As with any boom there will be investors who bought at the height of the boom expecting quick CG and they will be disappointed.
We are still buying for CG but realistically we know that most of our profits will probably come in the next 12-18mths. The trick IMHO is to avoid a possible fall in values after the boom has ended and buy in lifestyle locations where steady CG’s should still be achievable after the boom. Even if values stagnate for a short time after the boom, we should still have achieved enough CG in the short term to grow our equity for future investments.
So when you think WA, don’t fall into the trap of thinking Perth only. Look for lifestyle destinations outside the metro area, with good infrastructure and still within easy reach (say 400km’s radius). Places like Mandurah, Bunbury, Busselton and Margaret River will continue to attract sea-changers and generation-X’s seeking lifestyle improvements well into the future. The ABS population forecasts predict all these places will experience well above average growth for the next 10-20 years or so. There are also several major infrastructure projects either planned or underway which will only serve to cement the attractions of these destinations. Current median values are still lower than Perth although I think that will change before very much longer. I honestly can’t see these destinations “overshooting”. If there is a correction it will IMHO be relatively minor before settling back into a steady growth pattern.
Flatout
Hi Guys,
I’m from Perth, Northern Suburbs. Like all booms there must be an ending, though I believe that we are looking at least 12-18 months before things slow down.
I see people camping out at all the new land estates every weekend. Last weekend at somerley 24 blocks of land sold out within 2 hours!
In the northern suburbs the factor that seems to be driving up the established prices is the replacement value.
For example, you have a few older suburbs, eg, clarkson, merriwa, ridgewood – which all have brand new estate developments next to them.
The costs of H&L packages in the new estates, such as clarkson are $300k+ therefore agents are bringing the cost of the older houses up to match this – based purely on replacement value.
I’m currently building at the moment, and the costs of building are continually going up! I had a contract with WA housing Centre by where they tried to put a price increase of $20k on my contract within 2 months!! I left them, and am now with Home Buyers – though all builders seem to be averaging 1-2% increase each month!
Baed on the demand, with the land releases going up each month, and the building costs also going up… I’m not sure what will slow it down?? Maybe once all the land is sold off??
Another factor that should be considered is affordability. If you compare the % of wages that people in eastern states put towards their mortages – compared to people in WA – then you will see that we can still afford to contribute more. I read a report that said the average wage in WA is only $70 per week less than eastern states… though I’m not sure how accurate this is!
Anyway, back to work:)
Cheers
wayne
Wayne Leech
http://www.WaynesGuide.com – Accommodation in Western Australia.
List your holiday home for FREE!Hi,
I too am from the northern suburbs and have been looking for a IP around the Clarkson area. With Somerly nearby and all the infrastructure that is there do you think this a good place to buy. This is my first investment property and feel comfortable buying something closerto where I live. (maybe I need to get out of my comfortzone) Prises have risen quite a bit as Wayne has said, but will having new houses around it be better for Clarkson as a suburb or worse. (people would prefer to rent in a newer house etc)….. I’m getting a bit frustrated as every week the prices seem to go up and up. i dont’ want to wait 12-18 months for things to level off and im not really in the position to buy in QLD (as I cant view the property etc) although I would like to.
I have considered buying a unit closer to the city but feel that a house with land is a better long term option. Still wouldn’t be a +CFP though.
If anyone has any thoughts or ideas I would love to hear them. Thanks again for all your posts!!!!
Julie [thumbsupanim]
Hi Julie,
If you can afford it then a House and Land package in Somerley isn’t a bad way to go – though that’s if you did it right now… in 3-6 months prices will be getting abit on the high side.
To give you an idea, I’m building in somerley (block was $128k, house $140k, finishing costs bout $25k)
I’ve seen houses the same as mine selling for $400k…. so the profits are there to be made.
However, if the price of blocks and the price of houses continue to go up then this margin will only get smaller!
A reckon a sleeping giant is Mindarie… only 9% last year… and still has houses around $400k!
Wayne Leech
http://www.WaynesGuide.com – Accommodation in Western Australia.
List your holiday home for FREE!Hi Wayne,
I have looked at land in Somerly – last release prices were $161K, im sure the next release will be around the $180K and rising. The propblem with building, like u said is the price increases and the time frame involved. It is taking so long for a house to be finished these days. Mindarie is a bit out of my reach unfortunately and in Quinns they are gone before they are listed. I will go and speak to some agents and get their thoughts and ideas. Thanks for your help and good luck with your house – Somerly is a beautiful area!!!
Julie[thumbsupanim]
no probs:) another idea would be to look for a run down 4×2 in the old part of merriwa & clarkson. This way you can get something alittle cheaper – then add value to it when you have some spare time and money.
I did this with my second IP in merriwa… it cost me $20k to do it up… though it’s now worth $120k more than i paid for it…
if you could get in the old part of ridgewood aswell, i reckon you would do good.
The other thing to look out for is marmion ave going through to yanchep late this year…. this will open up a few opportunities!
Wayne Leech
http://www.WaynesGuide.com – Accommodation in Western Australia.
List your holiday home for FREE!I have got my eye on a property in Clarkson that is a reno. Cant get through to inspect as owners are doing some work to clean it up – and it needs it from the look of the outside. I thought this would be a great way to get a property under value but it is on for $270K and still needs work. The prices in Merriwa have sky rocketed also – all around the $270K mark. I will keep my eyes and ears open and stay positive. Thanks again for your response.
Julie [thumbsupanim]
Yeah nice one Derek. I know what you mean by getting an offer you can’t refuse. Sell and start again with two or three x the number of properties at the start of another cycle perhaps. I know there are a few investors in the process of completing house and lands at the moment. Just be careful if you enter the market too late that by the time ur place is built in 18 mths time, the bull run has already past (if John Edwards’ & others predictions are correct). There are a few homes in Upper Coomera, Qld, Kellyville, Nth West areas that are selling below replacement value. Remember theres a lot of land they can sub-divide in WA so buy well.
The cheapest 3×1 in Perth are in Maddington, Armadale and Thornlie. ALl properties sell for around 250k and 3-4 years ago these properties struggled to fetch 60k. The 200k 70s apartments were 50/60k just 3 years ago.
All though no-one could ever predicted how big it was going to get i guess hindsight is a good thing.
Has anybody factored in the possibility of the WA boom being contributed significantly by overseas investors?
It is no secret that WA is the favoured part of Austrralia for investment properties for buyers from SE Asia, and in fact Asia as a whole. I am sure you would have noticed the change in the restaurant scene in Perth and many suburbs where more Asian-themed eating places are sprouting.
Recently I went to a few new show houses, and I could not help but noticed the majority of people looking at the houses, and having serious discussions with the sales people were folks from Indonesia and Hong Kong.
IMHO if these overseas investors were to continue to come to WA, the boom will continue for some time yet. The prices of properties in WA is still very reasonable compared to those in HK and SE Asia.Originally posted by asdf:Yeah nice one Derek. I know what you mean by getting an offer you can’t refuse. Sell and start again with two or three x the number of properties at the start of another cycle perhaps. I know there are a few investors in the process of completing house and lands at the moment. Just be careful if you enter the market too late that by the time ur place is built in 18 mths time, the bull run has already past (if John Edwards’ & others predictions are correct). There are a few homes in Upper Coomera, Qld, Kellyville, Nth West areas that are selling below replacement value. Remember theres a lot of land they can sub-divide in WA so buy well.
the problem with this asdf is that the tax you pay on your sales will reduce your asset base significatnly – particularly as we are looking at a market that may eventually flatten rather than ‘boom and fall’ as the prices have still not grown that much as a multiple of earnngs.
I cannot wait for the market to settle – material costs and tradies are getting out of hand. landscaping is one area that is getting ridiculous.
as the hegney report said, only supply can quench this market, yet that is unlikely to occur any time soon. actually i was looking at a map of available land from rockingham to mandurah the other day and it is interesting to note that there is very little raw land left ocean side of fremantle rd. I think it is a pointer for cap grwoth along that southern strip on the ocean side.
http://www.megapropertygroup.comINVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
the problem with this asdf is that the tax you pay on your sales will reduce your asset base significatnly
That is something I did leave out of my calcs plus I suppose the stamp duty and transaction/loan est costs on the new purchases. I suppose as long as you achieve your financial goals, doesn’t really matter which strategy you adopt along the way.
A lot of commentators and forumites are saying that the top is near and comparing it to similar Eastern state experiences between 01-03. I suppose we won’t know where the top is until its over but a couple of things which I thought was a little different for WA this time round:
Influx of workers from a variety of industries
Increase private spending on plants and factories – particularly resource sector
Increase govt spending on infrastructure
Immigration inflow from SE Asia, UK and SA
Baby boomers moving to coastal WA regions
2x consecutive rate rises in Sept and Oct 03 which we’re not going to be seeing from RBA anytime soon.Investors were also buying up in NSW at the time. Perhaps partly fueled by the change in CGT laws and dispensing of the indexation method. But there were no other factors which I can remember which distinctly stood out with that boom except for maybe post-Olympics euphoria?
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