podcast

BONUS EPISODE: Secrets of the Perth market uncovered: invest now or wait?

By Tamikah Bretzke

Damian Collins from Momentum Wealth returns for this special episode of The Smart Property Investment Show to give listeners the inside track on current market conditions in Perth and what this means for the speculative property investor.

Joining host Phil Tarrant, Damian explores the drivers of Perth’s economy, outlines current trends in the region and what’s being done to stimulate growth, and determines whether or not now is the right time for investors to enter the market, and what they can do to prepare themselves for the long haul.

Tune in now to hear all of this and much, much more in this special episode of The Smart Property Investment Show!

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Did you like this episode? Show your support by rating us on iTunes (The Smart Property Investment Show) and by liking and following Smart Property Investment on social media: FacebookTwitter and LinkedIn. If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insight!

Suburbs discussed in this episode:

Perth

Articles of interest:

Is Perth property the answer for eastern state millennials?
Yanchep and Two Rocks suburbs set for next Western Australia hotspot
Perth property to benefit from $1.2bn boost to infrastructure
Quarter of capital cities have median house prices over $1m

Listen to other instalments of The Smart Property Investment Show:
Episode 96: BONUS EPISODE: Tips for tackling pest and building inspections head-on
Episode 95: The top 10 things every investor should check before buying a property
Episode 94: BONUS EPISODE: From 1 to 28 properties – what's his secret?
Episode 93: 28 properties and an $11.5 million portfolio – how this investor did it
Episode 92: BONUS EPISODE: Investor reveals top tips for better property management
Episode 91: Why being 'pedantic' about property will enable this investor to be debt-free by 45
Episode 90: Portfolio update: SPI gives the inside scoop on its latest property purchase
Episode 89: Renovating as a couple: two young investors share their story
Episode 88: Everything you want to know about the short-term rental market revealed
Episode 87: BONUS EPISODE: Former Olympian shares his property development know-how

Full transcript

Phil: Phil Tarrant here, how are you going? Host of The Smart Property Investment Show. Special today, it's a bonus episode. Something I'm looking to do more of actually. Just a quick wedge in the middle of the week to focus on something in particular. And something that I am trying to get my head around for about the last year or so is the Perth market.

Earlier this year I was at a roadshow across Australia, with one of our products here called The Adviser, which is for the mortgage industry. I won't bore you with it. But I did a roadshow with that – five states, East Coast, South Australia, and WA and Perth, and I was talking to real estate agents talking about their business in the local market and how they go about being a better real estate agent, and how mortgage brokers can learn from that.

But one of the things that caught me was Perth was the last state we did, and just before I was about to go on stage to do this, Stephen Koukoulas, who’s an economist, sort of pulled me aside and said, "Oh Phil, I've heard you in the other states, you probably know this, but just so you know, it's a bit doom and gloom here mate. Things aren't great in Perth, so go easy on them". I sort of got thinking, oh the guy's just saved my bacon pretty much ‘cause I was pretty up to speed on Perth, but I was probably going to approach it the same way I had approached other states. So, it helped really realign my line of thought and my line of questioning.

Speaking to real estate agents out there, it had become pretty clear pretty quickly that they're doing it hard, as are the people associated with real estate, so mortgage brokers for example, who do the mortgages for people. With that in mind, I'm fortunate to have Damian Collins in the studio with me today. He's the MD of Momentum Wealth. Me and Damian were on Margaret Lomas's show, Your Money, Your Call last night, and I sort of persuaded him to come and have a chat with me this morning.

I want to pin him down on the Perth market and say, Damian what's going on out there mate, and is it a good time for investors to be out there?

Damian: Well, Phil the slashing of wrists has just stopped, but look it has been, if you look back at the market over the last three years, some of the old hats around town have been in the game for 40 years, tell me it's the worst cycle they've ever seen. I think it's cause of the, the average price is down about 7 or 8 per cent over that period of time, so it's not massive, but it's still a downturn. It's also just the lack of confidence, and the lack of transactions.

You mentioned before the real estate agents. Well, the average number of transactions in WA in 2013 and 14, was around about 60,000. Now they're down to about 35,000. So the brokers have got 45 per cent less business, although they can do re-fis and the real estate agents are suffering. So it's just been ... Obviously we had the end of the mining boom, and we noticed in 2015 particularly come into the second half, we noticed our tenancies, our tenancy, you know we've got a large rent roll, and the number of people saying, “I'm leaving the state. I'm going back, I'm going back to Ireland, England, or I'm going back over East or whatever”, it had suddenly turned from a massive influx of people and we had about, at the peak of the market there Perth was growing at nearly 4 per cent per annum. I mean that was just unsustainable. 80,000 in one year we grew so unsustainable.

Then the jobs and the construction phase of the mining cycles came to an end, and that takes a lot more workers than the ongoing operations, so we saw a big exodus of people.

The other thing was government policy. Sometimes they're helpful, and sometimes they're a hindrance, and the government decided in their infinite wisdom to in WA, take away all the benefits, or largely all the benefits for first home buyers in established properties, and funnel it all to the builders. So the builders were pretty happy. At the same time as we started seeing an exodus of people out of the state work wise, we also saw a giant increase in new construction in terms of new properties. People just thought oh well, I'll get extra money, go and buy a new house and land package out in the middle of outer suburbia.

At the same time, the double whammy for landlords was that, we'd had the same problem, and we've still got a little bit of that, we saw all these people going and buying new homes. And we'd get notices all the time, my home's built, my homes built. So that was what really caused the down turn over 2015, 16 and into early 20117, and just a general lack of confidence. People were worried about their jobs. What we've seen though in the last six months is things starting to turn around in terms of, there's some, you know, we're not seeing $50 billion dollar projects anymore. They're done and dusted but we're seeing $500 million here, a billion here. Big numbers I guess but in terms of mining scale not huge, but we're got engineering people we know who were slashing their wrists two years ago have now got some jobs and some projects to go on.

I guess in a nutshell, we're not going to see it run away, but we're at the bottom of a decently lengthy long bottom of the cycle. The vacancy rate's still high it's pushing high 6 per cent. Our rents have come off 25 per cent and that's brutal. I'm a property investor myself, so it's been a little bit painful. So, we're not seeing the exodus, people aren't leaving the state anymore. Few coming in, not huge numbers, but the cycle of the home buyer building out in the outer suburbs is coming off too. So look, I think I haven't seen Perth this cheap against Sydney and Melbourne since 2003. That was the last time. It was so cheap, and same with Brisbane, so cheap compared to Sydney and Melbourne it's glaringly obvious that they're underpriced.

Phil: So I'm a big fan of up here. I think it's a great place, and by this next comment I make, I might get some hate mail but, is Perth just one big sort of mining town? So, when you look at investing in regional Australia, a lot of people get carried away and think they'll make a quick buck in a regional town that might have one real driver as its economy. So you paint this picture sort of more macro about the transition in the infrastructure, so it's gone from a build phase into a production phase. The production phase is good. It means that we're just in the process of digging this stuff up now, it's all built, and getting it out for export, which is great for WA?

What else is there for Perth, which is going to stimulate economic growth? So why does property go up in value? Property goes up in value because there's a demand for it. There's a demand because there's people needing property. So, what are those few things, other than mining, which is going to help stimulate growth in Perth?

Damian: Look certainly the agriculture sector is quite large in Western Australia, and people don't realise that. It's the bottom third of the State. When you go below Perth, and all the way down pretty much to Esperance, it's the size of England. In fact larger, and that's all agricultural. So we've got a huge wheat exporting market. So agriculture is a big part of it. Up north, they've also.

Also, tourism and education has been areas that they still need to work on. We don't get as many foreign students as Sydney and Melbourne, but we certainly are well supported by particularly Singapore and Malaysia. They're culturally on the same timezone, they're quite culturally aligned.

Ultimately it is still very much a resource town. Its resources, and engineering work and all the other stuff that goes with that. So, Perth is a market. Well Australia is the whole economy. The world sees us a mining pit and still, our fortunes as a country go with mining just to a large degree but particularly in Perth. It's going to be mining focused. So if you think...

Phil: Which is okay and there is a lot of mining still to be done in WA for years to come. So is this really a classic real estate cycle where prices go up, then they stabilise, then the market catches up, and it'll go up beyond that, and then you see the next cycle again. Is this pretty much where we are? So, it's sustainable where the prices are at a point in time in the future?

Damian: Yeah look, I think it's having been now in Perth for 16 or so years, the cycles are pretty brutal over there. When it's on it's on and when it's off, it's off. Because it is so, it's a boom and bust town and you talk to the older guys around town, and they'll say it's been like that forever.

Phil: It's always been that way.

Damian: It's always been that way, and you've just got to get used to that particular cycle. But this one has been particularly tough. Look you can get ... We're buying houses 15, 20 kilometres from the city on 800 metre blocks rezoned areas, future development sites for 600 grand. I mean it's...

Phil: So people land banking, are they?

Damian: Yeah, and a lot of the stuff we've been doing for clients over the last two or so years has been well look, we don't think there's going to be much short term growth but take advantage of the infrastructure play and the rezoning.

So the two big trends that are happening in Perth is rezoning. We've got again, they're looking at Perth and it's sprawled out 60 kilometres north and 60 kilometres south. It very much hugs the coast. Goes a bit inland on the eastern part. The government's looking at that going well, we're two million people now, we're going to grow to four, four and a half over the next 30 plus years, well we just can't keep sprawling forever. So they're really starting to put a big focus on rezoning around...

Phil: So rather being getting skinny you've got to get fatter?

Damian: Yeah exactly. They want half the growth to be in established suburbs over the next 30 years and so that they're putting a lot of local pressure ... Putting pressure on local councils saying, well look, you've got this many people in this square area, we want you to have 50 per cent more. As of course as a lot of the local councils do, they go oh, not in my backyard somewhere else. So, there's a bit of...

Phil: That's an education mind shift that needs to happen obviously.

Damian: Yeah it's funny. Look it's still because it’s such a low-density city, you know people put up four storey apartment house and some of the neighbours think the end of the world is going to come, and this is inner city areas. Not talking about suburbia. So there's still a bit of a mindset to come around, but there's demand there. There's huge demand for baby boomers scaling down and also for younger people who want lockup and leave.

So, yeah we've definitely been buying sites for clients that have got rentable houses on them that at some stage in the future, they will most likely develop themselves, or if not, they'll pass on to a developer. Historically in an up cycle, development sites outperform the market by quite a bit. You've seen that in Sydney and Melbourne. Your average price has gone up 80 per cent but development sites in some cases have gone up 200, 300, 400 hundred per cent. So, in an up cycle development sites definitely tend to outperform the market.

Phil: So you paint this picture of an up and down market. So it's a lot more aggressive the cycles in Perth. As an investor, what do you need to be able to play in that market place because in cycles, which shift so far, sometimes quickly, you need a bit more of a backbone, a bit more resilience to play in those markets.

So what are those handful of things that investors need to confidently play in the Perth market considering where it is right now?

Damian: You've got to have a long term outlook. So if you invest in Perth in over 20 years you're going to probably see another brutal down cycle in that time. Look, even at 8 per cent though it's kind of hard to say do I sell, because by the time you pay your capital gains tax, you're selling agent fees, 8 per cent is still not enough to sell. The market's just to time in the west, and I'm happy to talk about the Pilbra if you want in a minute, there's some things going on up there, but they're the sort of markets where its massive rises and falls, that's the ones you want to time. Perth is still a capital city, it's going to be more volatile than Sydney and Melbourne, and to some degree Brisbane as well.

You've got to have a long term focus and you've also got to be willing to sustain the ups and downs and just one of the other things is, you know in terms of loans, you don't want to cross collateralize your loans because you know, in a situation, let’s say you bought in Perth 18 months ago, and you're down 10 per cent. If that's standalone mortgage, you can set and forget. If you've got it crossed with the other properties, you think gee, I've made some gains here and I want to invest leverage on that, they'll revalue all your portfolios. So, I'm certainly not a big fan of cross collateralization.

Phil: That's a really good point.

Damian: Keep them stand, keep them stand alone.

Phil: And would you find that to play well in a Perth market, and there's obviously opportunities there, and you're painting ... I like this idea about land banking, but would that be part of a more diversified, geographically diversified portfolio? You wouldn't put all your eggs in a Perth basket right now if you're a new investor?

Damian: If it's your first property, and look we find – I mean, we're based in Perth but we advise clients nationally – but we still find like a lot of people, people tend to want to stick with their home state for the first one. I say to them, as long as you've got a longer term outlook, you know, that's perfectly fine. If you think you're going to make money in the market in Perth in the short term you're not, so be aware of that. But if you're an investor getting into multiple properties, yeah. It's a portion of your portfolio.

It's going to be more volatile but it does tend to be historically. We went back and looked at the last cycles and investors have been in the Sydney market for a long time. Remember 2001 to 2003 when Sydney had a substantial run up – Perth flat lined over that period of time. Sydney median prices was about where it is today. More than double what the Perth one was. And dollar for dollar, Sydney's about three to four times what Perth is.

Perth was just ridiculously cheap and then it had a boom of its own. Probably overshot the mark. Went up nearly twofold over and nearly doubled, over a four year period, caught up to Sydney, which was obviously not right. Sydney's a bigger city more global city, it should be more expensive, and then it had its 10 years of flat. Like Sydney had its seven or eight years of flat.

So, the cycles I guess, if you're amassing a larger portfolio, I would be certainly be looking at ... You'd want properties in your major four capital cities, Sydney, Melbourne, Brisbane, Perth, then after that you might start looking at spec areas. Yeah, if you're going to have a decent sized portfolio, Perth certainly would be a part of that if you're going to look to invest and take advantage of what's going on.

Phil: So you've spoken about the rezoning and I think that's quite a forward thinking strategy on behalf of local State governments, State councils. So if you're looking, as an investor looking to identify assets in the Perth market, you'd be looking for stuff obviously on larger blocks that have rezoning capabilities. So, you're saying houses on larger blocks that can be rezoned is where investors should be focusing right now?

Damian: Yeah, and that's what we've been doing. They've really focused on transport corridors, so we've got rezoning on the northern train line pretty much within activity walking areas 800 metres of the train zone. Around shopping centres. We're even seeing developers now in some of the big shopping centres build apartments at the shopping centres. So they're trying to get more activity within those areas, and even surrounding the shopping centres. What they're trying to do is reduce reliance on cars.

There's a new government come in and they won pretty convincingly, so unless they really screw up, they're most likely to get back in, in four years’ time.

Phil: What were they voted on? What sort of got them over the line in terms of...

Damian: Oh it was ABC, anyone but Colin who was ... Colin was our previous Premier and people had enough of him and that was a big part of it. Like it always is in elections, the government will claim it's all their vision, but half the time it's, oh I can't stand the current guy. Give someone else a go. Look, the state debt was – they made a lot of mistakes and obviously this is not a political show, so we won't get into it – ran up a lot of debt, built some good infrastructure but at the wrong stage of the cycle. They could have built it for half the price now.

I guess one thing though that was quite distinct was their public transport plan was Metronet. So it's quite an ambitious plan, and that certainly did capture a lot of votes and a lot people. Perth has had nowhere near the train infrastructure that Sydney and Melbourne has had. It's better and they've done a few things over the last decade, but it still needs a lot of work. Again, if you're going to get those livable cities, high density you need the transport and you need the density. It all goes hand in hand together.

So, there's already a train line committed out to Forrestfield for those of the listeners who don't know that. That's out the back of the airport. Now that's a suburb that's only 14 kilometres from the city as the crow flies, and you can get houses out there on 800 metre blocks for 450. And so, we were buying up a lot there. The prices have overshot a bit and come back a bit so, their train line is getting built. When we've looked back over periods of time where there's infrastructure coming in, a lot of the benefits aren't captured in terms of property prices, until the infrastructure's on the ground, because people hear about it and they go, oh great there's a train line coming. They look around and go where, especially if it's underground. Well, okay it's coming but you know, it's still another 18 months of driving around being, and getting a bus, whatever it is.

So I suspect when the train line comes through, out to Forest Hills, the foothills and the area around that will certainly pick up in value. Potentially another 10 per cent when that comes up. So it's still 18 months away at least, from completion so a lot of work to do.

Phil: So is that a hot spot is it where you should be thinking?

Damian: Yeah look, I mean again, no...

Phil: Hot spots but people, that's the currency of property investing right? Everyone loves it.

Damian: If you're looking to make money in the next 12 months, no because I don't think anything in Perth's going to run away in the next 12 months, but certainly if you've got a longer term horizon, yeah. When you've got a train line, if you can get a house for 450 on a train line 14 kilometres from the city, that's an 18 minute train journey into the city. You just can't get anything ... You'd be lucky to get a one bedroom apartment in Sydney or Melbourne for that price.

Phil: People obviously like their time in the market, and they want to buy at the bottom, sell at the top, whatever the strategy is that you've got going. So can you confidently say, and I'll pin you down on this, is the market back up in Perth now? So if you've been thinking about Perth, hurry up because it's only going to get better?

Damian: I'd love to say hurry up. I still think this year you can still get in. So we are getting ... So our buyers agents, we've got a team of buyers agents on the ground, and I get the emails each week, offer going in on this property. They tell us so we do that. But also then they give an update so we get a good sense of the market, and we are missing out. You know, we got one over the weekend that said, I think he offered 545, six other offers, first week on the market. So, that development stuff that we've been targeting, is smarter investors who are coming into the market. They're the ones going for that sort of stuff.

In terms of your traditional apartments and stock standard sort of properties, there's not a lot of movement in those. There's been a bit of a pick-up in volume this year, and I'd love to say, Phil get in there and go now. I certainly think we're at the bottom. We're starting to recover you don't need to buy tomorrow, but look in 18, towards the end of 2018, I think we will have shaken out all that excess stock. So the next 12 months are about buying. If you've got a unique type of property, yes. You'll probably pay more in 12 or 18 months for development type size. If it's just a passive normal investment, they're probably not going to move a lot in the next 12 months.

Certainly looking at the cycle again, barring any economic calamity, China collapse or anything we can't see, I think in the next 12 months it will be the place to put some money on.

Phil: One of my best litmus tests for the state of the market, whether it's a suburb or a region or a state is ... You know I'm quite fortunate in my job I get to speak to good buyer agents, yourself included, and one of the questions I always ask is, are you calling real estate agents more than real estate agents are calling you? So one of the biggest positives for me as a buyer's agent is the relationships they have with real estate agents. So they typically get properties before they come to market, and they get the pick of the bunch, and I see a lot of value in that.

So when it flips from real estate agents you can't get a hold of them because they're got so much on that the buyer's agent is the last in the row, because typically the guys got to screw the vendor down on price more than anyone else. When that flips, is where you know there's a true change in the market, and that's a really good indicator for me. How far off is that in Perth when the agent's harassing you more than you're harassing the agents?

Damian: Oh look, it's a bit of a mixed bag again. I mean we do get...

Phil: It depends obviously yeah.

Damian: ...we get a lot of the normal stock. They're flooding us all the time and sending me email. I just pass them onto our team, and our research department but they know the hot one. They know the hot ones that are going to go. But look, we still get ... They like to work with us because one of the benefits of most buyers agents us included, we've got our own mortgage division, is we don't go and put offers in until we know they're guaranteed they've got finance. So they know it's not going to fall over. In Perth, it's about 1 in 3 to 1 in 4 fall over due to finance.

Phil: Is that the lenders are just too nervous of the asset they're financing? Is that…

Damian: Oh, it's also people just don't ... Because we're not an auction based city, people go and say, I'll buy a property, put an offer in and then they go and figure out their mortgage, which is a bit crazy.

Phil: And valuations are not stacking up?

Damian: Valuations have come in. Not so much on purchases. Most of the time on the purchases you'll find the valuer is at purchase price. It's more on people trying to get equity out of their other properties. The values have come in, existing properties, the vals have come in low, and as you mention a 7.25 I think is the servicing rate. It's pretty brutal considering you can actually borrow it ... I think we did a loan the other day 3.74 per cent through PNI loans. So when they're assessing it at 7.25, you know you can afford it when it's 3.74.

So, look it's still definitely a buyer’s market I'll say that. So there is apart from those unique type properties that the general market is still a buyer’s market. So there's an oversupply probably about 10, 15 percent oversupply. There is more hidden stock in the rental market so that stock in the rental market, cause that's oversupply, as the sales markets and the volumes have picked up. You go back and look at cycles historically when you come off a bottom. Volume has to pick up for a while, and what that does is clear all the backlog and stock out, the hidden stock, the people waiting to sell so that'll take a good 12 months to clear through. Then you'll start to see all that hidden stock's gone, the vacancy rates come down. That's when you'll start to see general price growth in the market across the board.

I wouldn't expect any substantial price growth in the general market in the next 12 months but particular develop type things are the smarter investors already got their eyes on. That'll move a bit more.

Phil: So I'll take from this chat for investors find stuff that has a bit of an X factor, a bit of an upside so stuff that over time you can do something with. It might not be the next cycle, it might be the cycle after, but good land banking...

Damian: Well I think for a lot of our investor clients, they like that X factor just because look, you know it's great when you have the markets run up like they have in Sydney and Melbourne, but with inflation at one and a half percent, and wage growth at not much better, it's going to be hard to sustain 7 or 8 per cent standard growth in the market over the long term. So look, if you can ... you know there are downsides to those sort of properties that are older, more maintenance, they've certainly got less rent. They burn more of a cash hole in your pocket. So, they're not for everybody. Very much our property selection's tailored to individual client needs, cash flow, and what they need. If you can afford it, they're the types of properties something with a bit of an X factor where you can add value. Whether that development allotment or even renovation something you'll create in that equity rather than just waiting for the market to happen for you.

Phil: Okay, that's good. Just going back to some of these macroeconomic factors and what stimulates growth, one being diverse fired economy, obviously mining production phase. You spoke about a good agriculture sector. Tourism is huge. Is there any sort of noise around WA about Qantas' announcement to fly direct from Perth to London? From what I understand, that's got to be the hub that most Australia transits through to go to the UK. So that's got to be a big upside for you guys?

Damian: Yeah, look it has been and I guess for a lot of people, a lot of eastern States people haven't been to Perth and when they're going through to London they're expecting it to be quite a stop off as you say. Previously, I mean, when I've gone on my holidays over into Europe the last couple of years, we've gone Emirates just because it's nice and simple. You go through Dubai and off you go. Now that Qantas is flying direct if you're going into London that's obviously the one to be in. So, Qantas is creating Perth as basically their Australian hub because they've lost a lot of business to Emirates because Emirates could always – and even Etihad and others because they could stop in the Middle East and go on. So they're certainly playing the big game with it, and you know, you will always get, people think well, I'm flying four or five hours to Perth before 18 hours. I might stop off here for a few days on the way over or on the way back.

Phil: Have a look around.

Damian: Have a look around. So all that sort of stuff helps. There's been a lot of new hotels built, and coming in the pipeline, but look, you can't get away from the fact all these little things help. The core industry in Western Australia is the mining sector, and for the listeners who don't know, we call the ... The word is FIFO, which is fly in fly out, and the vast majority of mining workers operate that way, because the mines are in towns that aren't too pretty. They go away for a shift. It used to be eight days on six days off. Some are going back to two weeks and one. They don't really spend much money when they're away, it all comes back into the Perth market. All those other things help but it's like in America, Houston's an oil based town and it has its booms and busts. The Western Australia economy needs more diversification but it's still going to be heavily reliant on the mining sector.

Phil: I think you've sort of outlined its boom or bust are the rules for engagement for investors, but let's touch on it very quickly. The Pilbra, so for our listeners that aren't too familiar, that's northwest Australia. Your Port Headlands for example, are big areas. Obviously some people have really got hurt in that area. Back in the heady days of the mine construction phase and people are buying $7-800,000-odd properties three years ago, or building them and getting a ridiculous amount of rent on them, today are worth a couple of hundred grand. What's your take on the market?

Damian: Well I wish, I mean we were very much advising people, don't touch it with a 20 foot pole. Unfortunately people got blinded by the greed up there and I heard stories of doctors in Sydney and Melbourne just spending a million dollars, 1.3 on three bed, one bath houses that you could buy in Perth for $290,000. It was just crazy sort of stuff, and sure enough the government's land corp was the government agency. The chief of that organisation said, "We're out to destroy equity". This was in 2011, because he wanted to make a livable town. Now when you say I'm out to destroy equity, that's pretty scary, and so it was get out of Dodge. We told no one to buy there, and if you had a property up there, to even think about selling it. It was just oversupplied.

Now we're at actually the other stage of the cycle where it's so ridiculously cheap that we're actually looking at coverage on it at the moment. Our research team haven't said buy there yet, because we still think there's a dead cat bounce. It's got a lot of hidden stock, a lot of bank foreclosures still up there, but you can now get a property up there for 200ish thousand. You can't build it for less than $450k, a brand new house up there just because the building costs are so expensive, so far away.

So we've got to look at long term supply and demand, how long it's going to soak up the stock, but it's certainly at the other end of the spectrum where it's down 80 per cent and in some cases, for a speculator, not for your first investment, it might be worth starting to have a look. Anyway our research team are having a look at that.

Phil: What are the yields like up there?

Damian: Well the rents have come off the same sort of thing too as well, but you'll see no new construction up there until prices get back up above $450-500,000. So, that's got to be a 100 per cent double it, we've got to double in price before anyone will even build up there, because you just can't...

Phil: What's going to sort of make that happen?

Damian: Well I guess that's what people don't realise. The iron ore even. We've had the end of the construction phase of the boom up in ... But in the Pilbra now, we're exporting ... BHP and Rio are both exporting around 300 to 350 million tonnes of iron ore. That's three times what they were doing 12 years ago. So, operationally there's still huge things going on up there. You know that's a lot of tonnage. That's a million tonnes of iron ore pretty much every single day of the year.

Phil: That's a lot.

Damian: It's a lot of iron ore to dig out of the ground, and they've got to train it in to the ports and that sort of stuff. So there's still 10-20,000 workers in each company working in those industries and doing it.

Phil: And they're not fly in fly out guys, they live up there?

Damian: A bit of a mix. Some do. My brother-in-law for example, he's with Rio Tinto, he flies in flies out. He's a supervisor up there and others, some of them do live up there. The big problem those towns have is, it’s very hot and humid and if you can deal with the climate, but a lot of people when their kids get to particularly senior school, that the trouble. They've had to go, schools maybe they're not quite great I want to bring them back to a Perth based, whether it's a private school or public school. So, they've struggled. They've always had transient populations but look, any time you see an asset class that is more than 50 per cent below its replacement value, long term it's got to come back to replacement value. It's just is this going to happen in the next 12, 18 months? I don't think so but as I say, our research team's going to have a look at it. Look at where the supply is, the demand is and I suspect in the next two years or three years we'll be, for the speculative investors, we'd say it's time to get back in.

Phil: So when you guys find that time to go up there you come and let us know.

Damian: Will do Phil. After our clients have bought first, we'll...

Phil: Of course.

Damian: ...we'll let you know.

Phil: Give me the heads up first though you know.

Damian: Will do.

Phil: But you know, it goes back to the value of a good buyer's agent. You can go away and make these decisions yourself, but unless you've got the band width and the skills and capabilities to actually understand, both macro and micro factors that can influence property markets, as I always say, it's good to have good people on your side advising you. And you know, it costs money to have a good buyer agent like it has a good cost ... Good money to have a good accountant. So, if you're unsure, you can go out there and find some really good ones. They're out there. Either way Damian, thanks for that.

Damian: Pleasure to be here Phil.

Phil: I think yeah I feel a lot more confident about my personal understanding of the Perth market as a result of this chat, and it's made me think differently about it. Do I start heading out that way? I like the idea, and the biggest point I would take from this is the type of assets you should be looking at right now. So it looks like there's plenty of stock on the market so you can go and buy your common garden, three bedroom, two bathroom place in the suburbs and you're probably going to do okay with that over time.

Damian: Yeah.

Phil: But you want to be finding those assets, which are going to allow you to capitalise on the population, which is going to grow over the next sort of 20, 30 years, double as you outlined, and the rezoning to try and create greater density, because you can't go 60 kilometres out along the coast, you're in regional sort of you know, regional suburb then. No one's going to commute 60k’s to get the work in Perth or even get to the airport if they're fly in fly out.

Damian: Look you just need a bit of that vision to look back, I mean I grew up in Melbourne and Melbourne was you pretty much rolled up the footpaths at five o'clock on a Friday afternoon in the city or even in the suburbs. So it's changed. 20 years is a long time, and if you've got to have a bit of that vision that Perth will go the way of Melbourne and Sydney, it will be a lot more dense and a lot more lively. You've just got to have a bit of that vision.

Phil: Well thanks for coming to fly the flag for Perth. I know you're a Melbourne boy at heart, but you're a passionate migrant to WA, so you do represent the State really well, and I appreciate your clear and unbiased opinion on the market place.

Damian: Glad to be here Phil. Cheers.

Phil: Very good. I hope you enjoyed this bonus episode. I want to do more of this stuff. It allows us to really drill in on specific areas, particularly geographic areas. One of the sort of most common questions I get on the show is, should I invest in X area? So I'm happy to give you my observations on it but they're just my observations. I don't proclaim to be a property expert. I pay my buyer’s agent good money to give me that advice. So I'll ... Keep the questions coming in, I'll find the people to come in answer them for you. Remember to check out Smartpropertyinvestment.com.au. We're on all the social channels, Facebook, Twitter, LinkedIn. One thing that you can do for me please is keep those reviews coming on iTunes. I do appreciate them. It's nice to know what we're doing is valuable and making a bit of difference to the way in which you invest in property. So please keep them coming. Remember, [email protected] – email there. You'll get to the team and they'll get back to you and respond to your questions. We'll be back again soon. Until then, thanks for joining us. Bye, bye.

Disclaimer: The information featured in this podcast is general in nature and does not take into consideration your financial situation or individual needs and should not be relied upon. Before making any investment, insurance, tax, property, or financial planning decision, you should consult a licensed professional who can advise whether your decision is appropriate for you. Guests appearing on this podcast may have a commercial relationship with the companies mentioned.

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BONUS EPISODE: Secrets of the Perth market uncovered: invest now or wait?
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