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Perth Construction Boom
Topic Started: 4 Sep 2014, 10:01 AM (9,604 Views)
Mike
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http://www.treasury.wa.gov.au/cms/uploadedFiles/_Treasury/Economic_Data/building_approvals_july2014.pdf

Building approvals increased to 3,103 from June to July which is a 23% increase.

Building approvals for June were 2,457. So from June to July we have had an increase of 646 new houses approved for construction above Junes level.

http://www.treasury.wa.gov.au/cms/uploadedFiles/_Treasury/Economic_Data/building_approvals_june2014.pdf

FHB grants paid in June for new house construction is 657 or 26.8% of all new construction is for First Home Buyers in June.

http://www.treasury.wa.gov.au/cms/TwoColumns_Content.aspx?pageid=13730&id=641

In July 707 FHB grants were paid for new construction out of a total of 3,103 approved properties. This is 22.8% of new construction. FHB as a % of approved properties decreased 4% from June to July.

So who is building all these new properties.

Upgraders. All across Perth you can find large houses under construction, far more then you will find in FHB areas under $430,000 in value with the new stamp duty concessions.

This months reporting could also be a bit of catch up after a few slower months of growth.

There can also be a delay between building approvals and finance approved. Building approvals tend to happen prior to finance approval as a Lender requires the building application to give unconditional finance approval on the construction.

However the FHB grant and building applications tend to happen at the same time as a lender also wants to see you have been approved for the FHBG which forms part or all of the deposit required for unconditional finance approval.

If there is a lag in the FHBG data it should start appear next month or data for August.

At present the data and what I see around Perth is a large increase in house construction in the $600,000+ market and the middle to expensive apartment market.

You can see a lot of subdivision in inner city suburbs, new estates popping up in more expensive locations. This is primarily driven by a lack of quality stock on the market in desirable locations. The quality homes have mostly all been sold over the previous 2 years. People cannot find what they want in that middle to expensive price bracket, so they are building.



http://mike-globaleconomy.blogspot.com.au/
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newjez
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Mike
4 Sep 2014, 10:01 AM
http://www.treasury.wa.gov.au/cms/uploadedFiles/_Treasury/Economic_Data/building_approvals_july2014.pdf

Building approvals increased to 3,103 from June to July which is a 23% increase.

Building approvals for June were 2,457. So from June to July we have had an increase of 646 new houses approved for construction above Junes level.

http://www.treasury.wa.gov.au/cms/uploadedFiles/_Treasury/Economic_Data/building_approvals_june2014.pdf

FHB grants paid in June for new house construction is 657 or 26.8% of all new construction is for First Home Buyers in June.

http://www.treasury.wa.gov.au/cms/TwoColumns_Content.aspx?pageid=13730&id=641

In July 707 FHB grants were paid for new construction out of a total of 3,103 approved properties. This is 22.8% of new construction. FHB as a % of approved properties decreased 4% from June to July.

So who is building all these new properties.

Upgraders. All across Perth you can find large houses under construction, far more then you will find in FHB areas under $430,000 in value with the new stamp duty concessions.

This months reporting could also be a bit of catch up after a few slower months of growth.

There can also be a delay between building approvals and finance approved. Building approvals tend to happen prior to finance approval as a Lender requires the building application to give unconditional finance approval on the construction.

However the FHB grant and building applications tend to happen at the same time as a lender also wants to see you have been approved for the FHBG which forms part or all of the deposit required for unconditional finance approval.

If there is a lag in the FHBG data it should start appear next month or data for August.

At present the data and what I see around Perth is a large increase in house construction in the $600,000+ market and the middle to expensive apartment market.

You can see a lot of subdivision in inner city suburbs, new estates popping up in more expensive locations. This is primarily driven by a lack of quality stock on the market in desirable locations. The quality homes have mostly all been sold over the previous 2 years. People cannot find what they want in that middle to expensive price bracket, so they are building.



Did Did see Alex's thread stating the higher end were still at 2008 prices? Interesting stuff.

As for new builds, there will be many reasons. Some could be people coming off fifos, getting local jobs and wanting a place of their own. The improvement in the UK market will also have a bearing. The higher grant for new builds will be a factor. Can you or anyone else back up your claims? What are these suburbs you are driving around. Smells like b/s to me. Give us something more concrete please.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
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Jimbo
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Mike
4 Sep 2014, 10:01 AM
Building approvals increased to 3,103 from June to July which is a 23% increase.

Building approvals for June were 2,457. So from June to July we have had an increase of 646 new houses approved for construction above Junes level.

FHB grants paid in June for new house construction is 657 or 26.8% of all new construction is for First Home Buyers in June.

You are basing your assumptions on the fact that grant payments and buildings approvals happen at the same time?

You can't apply for a FHOG until the following conditions have been met

Documentary evidence of progress payments totalling an amount equal to or greater than the value of the grant (such as an invoice or receipt from the builder). Must be evidence of construction, not deposit (for example, slab down).

source, application for FHOG July 2014 http://www.finance.wa.gov.au/cms/uploadedFiles/_State_Revenue/FHOG/FHOG_Lodgement_Guide_and_Application_Form.pdf


Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Massive
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Wasn’t it Mike who has stated he is recently attending finance classes? Regardless, he is being well and truly schooled on APF lately..
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Mike
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newjez
4 Sep 2014, 12:39 PM
Did Did see Alex's thread stating the higher end were still at 2008 prices? Interesting stuff.

As for new builds, there will be many reasons. Some could be people coming off fifos, getting local jobs and wanting a place of their own. The improvement in the UK market will also have a bearing. The higher grant for new builds will be a factor. Can you or anyone else back up your claims? What are these suburbs you are driving around. Smells like b/s to me. Give us something more concrete please.
Did you read the data.

Only 22% of new builds in July is for FHB, so is who is building the rest.

The remaining 78% consist of properties not built by FHB.
Jimbo
4 Sep 2014, 12:54 PM
You are basing your assumptions on the fact that grant payments and buildings approvals happen at the same time?

You can't apply for a FHOG until the following conditions have been met

Documentary evidence of progress payments totalling an amount equal to or greater than the value of the grant (such as an invoice or receipt from the builder). Must be evidence of construction, not deposit (for example, slab down).

source, application for FHOG July 2014 http://www.finance.wa.gov.au/cms/uploadedFiles/_State_Revenue/FHOG/FHOG_Lodgement_Guide_and_Application_Form.pdf

You are confused and show your lack of experience in this area.

FHBG are approved prior to finance approval from a lender otherwise the lender does not approve the loan, it is a basic requirement.

Like all loans a progress payment is drawn once construction commences, however the grant was approved many months prior when the loan settled.

You are getting mixed up with approval of the grants and when actual payment is made of the grant.

If you read the application document. It clearly states the grant is paid for new builds once the first progress payment is made which is always for the slab down.

The grant needed to be approved prior to this for the lender to give unconditional finance. I deal with these types of loans all the time so I know them well.

If you read my first posted I stated there may be delays between the approval/payment of grants and building approvals. So the only person confused is you who fail to read my post carefully. I already covered that aspect.



Edited by Mike, 4 Sep 2014, 01:27 PM.
http://mike-globaleconomy.blogspot.com.au/
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Lef-tee
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Quote:
 
Only 22% of new builds in July is for FHB, so is who is building the rest.

The remaining 78% consist of properties not built by FHB.


First home buyers building nearly a quarter of all newly-built homes? That sounds like quite a healthy level to me, juxtaposed with elsewhere.

Frankly, I would have been amazed if it was the reverse and they were building three-quarters of all the new homes since that would be pretty much impossible unless each and every WA FHBer was building a bunch of new investment properties.

But don't FHBers in other states still have access to an FHOG so long as it's for a new build rather than pre-existing? What's wrong there?

I'm a bit confused - this thread appears to be in response to some suggestion the FHBers were now the dominant force in WA. I've certainly never said anything like that, only pointed out that their numbers in WA are much better than elsewhere. Maybe it isn't aimed at me.
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Jimbo
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Mike
4 Sep 2014, 01:09 PM
You are confused and show your lack of experience in this area.

FHBG are approved prior to finance approval from a lender otherwise the lender does not approve the loan, it is a basic requirement.

Like all loans a progress payment is drawn once construction commences, however the grant was approved many months prior when the loan settled.

You are getting mixed up with approval of the grants and when actual payment is made of the grant.

If you read my first posted I stated there may be delays between the approval/payment of grants and building approvals. So the only person confused is you who fail to read my post carefully. I already covered that aspect.


I accept that FHO's can apply prior to slab down. You got me there (I have never bought a new house).

But again, you are stating your numbers as fact when they are not.

It would only be a fact if the following were true.

1: All FHO's were buying with a mortgage where the payment of the grant would form part of their deposit requirement for finance. Not all FHO's are that hard up that they can't bridge by 10k. Not all FHO's buy using a mortgage. It is much easier to apply in one step with all the supporting documentation required for payment.

2: Also, (as you state), building approvals and FHOG applications are not in lock step.

There is another assumption you are making and that is that 800k houses are trade ups and not first homes.

But consider this. If they are trade ups, have the buyers sold their existing properties yet? If they have, where are they living?

Also, if there is a demand for mid to high end property, why is the mid to high end market tanking?

The fact is, it doesn't really matter who is building these properties, supply is being increased at a rapid rate just as immigration is falling and rental vacancies are increasing.

supply/demand











Lef-tee
4 Sep 2014, 01:44 PM
First home buyers building nearly a quarter of all newly-built homes? That sounds like quite a healthy level to me, juxtaposed with elsewhere.

Frankly, I would have been amazed if it was the reverse and they were building three-quarters of all the new homes since that would be pretty much impossible unless each and every WA FHBer was building a bunch of new investment properties.

I'm a bit confused - this thread appears to be in response to some suggestion the FHBers were now the dominant force in WA. I've certainly never said anything like that, only pointed out that their numbers in WA are much better than elsewhere. Maybe it isn't aimed at me.
I think Mike is saying the opposite.

He is trying to say that new house building is mainly for trader uppers starved of decent options in the mid price range.

The conclusion he is trying to paint is that there is plenty of money washing around in WA and everything is well with the property market.
Edited by Jimbo, 4 Sep 2014, 02:01 PM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Mike
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Lef-tee
4 Sep 2014, 01:44 PM


First home buyers building nearly a quarter of all newly-built homes? That sounds like quite a healthy level to me, juxtaposed with elsewhere.

Frankly, I would have been amazed if it was the reverse and they were building three-quarters of all the new homes since that would be pretty much impossible unless each and every WA FHBer was building a bunch of new investment properties.

But don't FHBers in other states still have access to an FHOG so long as it's for a new build rather than pre-existing? What's wrong there?

I'm a bit confused - this thread appears to be in response to some suggestion the FHBers were now the dominant force in WA. I've certainly never said anything like that, only pointed out that their numbers in WA are much better than elsewhere. Maybe it isn't aimed at me.
This thread is about pointing out the strong construction levels across all segments of the market.

FHB typically make up 20-30% of the market depending on conditions and what incentives are in play in WA.

I agree Perth has a healthy FHB market and has for the last few years.

It is a combination of affordable fringe suburbs with lots of land, you can build a basic 3x2 on a cottage block for $320,000. The same money will get you an established older house on almost double the land size. So its down to personal preference of what the buyer wants.

Perth rents for houses at $460 per week, most FHB areas have new 3x2 in the $350-$380 price bracket. At $350 per week rent that is $18250 for the 365 days of the year.

A FHB with 5% deposit including grant buys a buys/builds a house at $320,000 at 5% interest, you can get 4.6% variable now or even 3.99% fixed for 1 year, 4.7% fixed for 3 years.

At 5% interest only, on $304,000 loan ($320k -$16k 5% deposit) is $15,200 per year in interest. So the FHB is over $3000 better off then renting. Yes rates, insurance and such come into it but it wont equal $3000. Any extra the FHB pays above the interest is paying off the actual building. Every dollar paid off will further reduce the monthly interest bill.

If you fix the rate for 1 year at 3.99% is $12,129 in interest over the first year. So a FHB can be really make some nice inroads into a loan over the first years.

This is why FHB are moving from rentals to owning their own homes, with rates so low and set to remain at these levels or close to it for the next few years it provides the perfect opportunity to get into their own home, smash the mortgage for a few years so when rates rise the loan is well under control.

Why rent when interest rates now allow you to own a home for below rental costs, hence why the vacancy rate has slowly moved up over the past 18 months.
Jimbo
4 Sep 2014, 01:58 PM
I accept that FHO's can apply prior to slab down. You got me there (I have never bought a new house).

But again, you are stating your numbers as fact when they are not.

It would only be a fact if the following were true.

1: All FHO's were buying with a mortgage where the payment of the grant would form part of their deposit requirement for finance. Not all FHO's are that hard up that they can't bridge by 10k. Not all FHO's buy using a mortgage. It is much easier to apply in one step with all the supporting documentation required for payment.

2: Also, (as you state), building approvals and FHOG applications are not in lock step.

There is another assumption you are making and that is that 800k houses are trade ups and not first homes.

But consider this. If they are trade ups, have the buyers sold their existing properties yet? If they have, where are they living?

Also, if there is a demand for mid to high end property, why is the mid to high end market tanking?

The fact is, it doesn't really matter who is building these properties, supply is being increased at a rapid rate just as immigration is falling and rental vacancies are increasing.

supply/demand












I think Mike is saying the opposite.

He is trying to say that new house building is mainly for trader uppers starved of decent options in the mid price range.

The conclusion he is trying to paint is that there is plenty of money washing around in WA and everything is well with the property market.
Yes some FHB will not use a mortgage or hence the grant.

This would only represent a very small section of the FHB market unless you have some data to show otherwise it is not very common at all.

Yes some well paid FHB may build expensive houses or due to a gift from family.

I think those issues are far from normal and are the exception rather then the rule.

Most trade up buyers build first then sell or sell while building and either rent or live with family. People who are building a second home have normally have substantial equity built up in the first home.

To pay 1 year of rent works out to be around $20,000 for the year If that, when building a $600,000+ home it is only a small part of the cost. You can opt to live in the current home until the 2nd home is built then sell, once again you only need to cover the mortgage and perhaps dip into some equity.

Keep in mind while you build you are only paying the loan as progress payments build-up. The mortgage cost is at its largest once you reach lockup stage and completion as the loan is 100% drawn. For most of the construction you are only paying a fraction of the total loan cost as it slowly builds up with each progress payment.

I am currently building a new home to live in, which when finished will be in the $1.8-$2 million price range. While this is building we continue to live in our $900,000 house built only 2 years ago. These are not our investments or developments.

You would be surprised at how little it costs, the costs of buying floorings and window furniture far out weight the cost of holding this first property while the 2nd builds.
Edited by Mike, 4 Sep 2014, 02:13 PM.
http://mike-globaleconomy.blogspot.com.au/
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Jimbo
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Mike
4 Sep 2014, 02:03 PM
Perth rents for houses at $460 per week, most FHB areas have new 3x2 in the $350-$380 price bracket. At $350 per week rent that is $18250 for the 365 days of the year.

A FHB with 5% deposit including grant buys a buys/builds a house at $320,000 at 5% interest, you can get 4.6% variable now or even 3.99% fixed for 1 year, 4.7% fixed for 3 years.

This is why FHB are moving from rentals to owning their own homes, with rates so low and set to remain at these levels or close to it for the next few years it provides the perfect opportunity to get into their own home, smash the mortgage for a few years so when rates rise the loan is well under control.

Why rent when interest rates now allow you to own a home for below rental costs, hence why the vacancy rate has slowly moved up over the past 18 months.
Exactly Mike,

So what happens when all of these FHO's who are renting and building move out of their rentals into their new homes?

You know the answer to that one.

So the next part of the equation is population growth which is trending down.

457 applicants to WA (the largest international migration group) are down 41% to June 30th this year. International migration is the largest component of WA population growth averaging around 70% of growth over the last ten years but fell down to 63% in the December 2013 qtr.


Mike
4 Sep 2014, 02:03 PM
This thread is about pointing out the strong construction levels across all segments of the market.

Yes Mike,

Construction is strong just as migration is falling and as the economy faces the headwinds of a slowing capex spend and possible reductions in state spending due to falling resources royalties.

These are all classic signs of a market heading into over supply.

This is already visible in the rental market and the high end property market.

This is why I am out of property right now.
Edited by Jimbo, 4 Sep 2014, 02:35 PM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Mike
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Jimbo
4 Sep 2014, 02:28 PM
Exactly Mike,

So what happens when all of these FHO's who are renting and building move out of their rentals into their new homes?

You know the answer to that one.

So the next part of the equation is population growth which is trending down.

457 applicants to WA (the largest international migration group) are down 41% to June 30th this year. International migration is the largest component of WA population growth averaging around 70% of growth over the last ten years but fell down to 63% in the December 2013 qtr.



Yes Mike,

Construction is strong just as migration is falling and as the economy faces the headwinds of a slowing capex spend and possible reductions in state spending due to falling resources royalties.

These are all classic signs of a market heading into over supply.

This is already visible in the rental market and the high end property market.

This is why I am out of property right now.
I disagree.

I think the economic situation in regards to mining investment is over played and over hyped. It will have a slow down effect from the dizzy heights of the investment boom but will have far less impact here in Perth. Time will tell who is right.

Rental stock and Housing stock continued to fall this week, both have been trending down for the last month which I find strange. Normally we have a increase in stock in August as people bring rentals to market and properties for sale ready for spring. We are seeing the opposite which suggest demand is outstripping supply.

This make sense as WA has underbuilt housing for the past 4 years creating a shortage which is well reported, just most bears tend to not believe it.

We are playing catch-up in Perth to create enough housing stock for the existing population let alone any increase in population.

The slowdown in Migration is from very high levels of 3%+, if migration slows to 2% it is far more sustainable but still rapid growth.

Tell me what is the actual reduction in migration from 457 visas in actual numbers of people and what % does this represent of over all migration. I talked about this a few weeks ago, you roll out 41% as it sounds like a big number but in terms of total population growth it is only a small component. Supply some figures to backup your rapid slow down in migration?

What would you consider slow migration, anything over 1% population growth is considered good, we are presently about 2.9% per year.
Edited by Mike, 4 Sep 2014, 03:58 PM.
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