What the? Playing with peoples emotions

Hi Roodog,

Ahhh – I have made the connection now.

In terms of rental returns – the article I mentioned makes the point that rental returns and capital growth are generally speaking negatively correlated – that is, when one is going up the other is going down.

If you investigate this point further it stands to reason.

People who cannot afford to buy will rent and when more people have to remain as tenants there is greater pressure on rents and vacancy rates decline and rent (in real dollar and percentage terms) increases. At these times growth generall slows (fewer buyers) while rents increase (more tenants).

On the other hand as more people can afford to purchase property there is increased pressure on stock and buying prices go up.

These broadbrushed comments mirror recent (and distant) times in property.

As it currently stands vacancy rates in most cities around Australia are generally at very low levels as investors close their wallets and the market stagnates. This is causing upward pressure on rents with the eventual result (all things being equal) that property will become a more attractive investment to the greater masses once again and they will return to the market.

Perth is somewhat different – to a certain extent as we have enormous growth rates while at the same time vacancy rates are declining to a level where they are very low. The key point is that growth is staill far outstripping rental increases hence the falling returns.

In a long winded way – yes renting in Perth and investing in the ES is not a silly suggestion. And yes – if you bought some time ago you would be appreciating the recent gains while now making a bit of hay with increases rents in recent months.

Certainly in our case our portfolio has reached a point where it is almost neutral (based on purchase price). We have insured this position this with some cashflow investments in managed funds.

Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113

That is interesting about how normally as one is going up the other is going down Derek that would be a very useful tip to remember when trying to analyse a market.

Hi Mick Perry funny you should mention Bayswater, About 3 months ago I was driving around the back blocks just behind Tonkin HWY there. I came across this 2×1 fibro place that looked like no one had lived there for 10 years. It was on top of a little hill and looked like it had an ok size block. With my palms becoming itchy I jumped on the mobile and called the REA, as usual I wasn’t the only one who had spotted it and saw dollar signs. The agent said “it is on 900m2 and would have no trouble being sub divided etc”. I Said “yes but are the titles etc in place yet?” he said “no” and so I Said “so what we have here is a dump 2×1 sitting on 900m2 with a very shabby backyard”. Well I couldn’t wait any longer and said “so what are they asking?” he said we are confident we will get 600 000+!! I nearly dropped the phone.

The latest way of advertising here is that if anything is bigger than 500m2 they say “duplex size block $$” At the end of the day in my opinion it is what it is at that time, I could fit a motel in the back of one of my back yards but I don’t put it on the market for 15 mil. I am not saying there isn’t opportunity in sub dividing but the profit margin must be very slim when you have already had an initial outlay like that and it still hasn’t been titled let alone 2 houses put on it.

I think the Perth market will continue along these lines for another year or so possibly up until the Beijing 2008 Olympics.
Growth in China at the moment is unbelievable (10.5 % in the last quarter)
The mineral boom will continue however we will see lower prices for commodities such as iron ore in the next 6-12 months. The last negotiations with the Chinese for a 17% increase in iron ore prices was tough and I suspect the Chinese will make moves to curb price increases in commodities in the immediate future.
I think the greatest worry after the 2008 Olympics is a slowing of Chinese demand for raw materials such as iron ore. I can see big trouble for the Chinese economy after this time as I don’t believe their government is capable of managing such a huge economy in a transparent and fiscally responsible manner.
Any trouble in China will have an impact on W.A. and hence the property market may slow. India will play a more important role after this time and could prope the W.A. economy up.
My 10cents for what it’s worth.

Wow heard that yesterday on ABC radio…

I thought it was just my meds kicking in early

Here is our story.

We started off in Victoria where we live back in 2000. We watched it race away so cashed out and moved our focus to Brisbane. We bought and renovated up there and watched QLD race away. Again we cashed out and then moved our focus to Perth in 2003.

Having watched Victoria and Queensland get caught in a wave of hype and making money out of them, we went aggressively into the Perth market and lined up 6 properties on long settlements and little money down by offering over the asking price. The greed button of the sellers kicked in and they were happy to take our money. This meant we were buying in Mandurah for low 200’s, Maida Vale under 200, etc etc.

The long settlements allowed spectacular growth in the WA market that we had previously seen over here in the East. By the time settlement came we were often borrowing 100% of contract price.

However, being mindful of what happened here in the East, we began to exit our position in Perth earlier this year. We have one left and will shortly be exiting that as well.

An earlier poster predicted that the Beijing Olympics will ring the bell to end the WA boom. I am not sure but the signs of pending downturn that we saw here in the East are all big and bold in the West:
– Real Estate agents arrogant beyond belief
– this business of Expressions of Interest and lately For Sale By Tender
– agents not returning calls
– hysteria in the press about “unconscionable behavior” by agents and buyers EG: paying backpackers to camp out at land releases
– speculators all over the market
– distress in the mums and dads looking for PPORs.

There may only be 6 months left in the boom or there may be 18 months left. But a wise investor tries to go for the bottom of a cycle instead of trying to pick the top of a cycle. If it hits the top and you haven’t sold, you are left holding and have to wait for the next cycle to recoup your losses.

Personally I think Melbourne and Sydney now represent the better value having hit the bottom of their cycles, particularly Melbourne. When I see houses in Bedford going for $600k plus it makes Melbourne look very attractive!

My $0.02 worth.

Hi kmiddlet

That is an excellent post you are thinking and talking like a true investor not someone who has jumped on the band wagon at the peak of a cycle. The most important part of any investment strategy in my opinion is buy low and sell high. The RE market is a slower version of the share market; you buy at the lowest price set your sell price, watch it run and sell when you said you would at entering the trade. Yes the price may keep climbing and there will be a sense of what if I let it run a bit longer but all you need to care about is the profit margin that you needed and then getting out and allowing you time and money to enter the next. While the hopefuls all sit around the BBQ on the weekend talking about what big time investors they are because they were lucky enough to get on the back of a cycle, you have already taken a position on your next move.

I couldn’t agree more on the signs you are talking about, yes REA being arrogant and not returning calls etc I cant wait to catch up with some of them in a year or two and watch the coffee flow like it should do…well it is me that parting with the hundreds of thousands of dollars!

Again great post! I give it 6 months……