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Perth Construction Boom
Topic Started: 4 Sep 2014, 10:01 AM (9,618 Views)
newjez
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Mike
4 Sep 2014, 02:03 PM
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.

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.
Mike, you seem to be constructing a very good argument demonstrating why you shouldn't buy an investment property in Perth. You've convinced me; have you convinced yourself?

When you add your comments to Jimbo, you are creating the perfect storm. Youre hitting supply and demand.
Edited by newjez, 4 Sep 2014, 04:27 PM.
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, 03:56 PM
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.

Mining investment saved us from the full effects of the GFC. A well known and accepted fact amongst economists and the government.

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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.


Where do you get your rental stock numbers from? I see numbers trending up consistently over the last 2 months.

Quote:
 
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.


Perth has always been a reactive market because we generally build to order rather than building to sell on completion (as in the UK, Ireland etc.). Naturally, this tends to create a supply/demand imbalance. However, over the last few years that has changed with apartment buildings and block subdivisions being built to sell on completion. This adds to the overall supply side.

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


We have plenty of housing stock. People are not living on the streets. Realestate.com.au has 6650 empty rentals advertised.

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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?


457's make up 38% of all migration visa applicants (the largest proportion). The actual number to WA in 2012/13 was 14660 and 2013/14 is 8610 so a drop in numbers of 6050. Assuming that if 457's have dropped by 41% and other skilled categories followed that, then that would equate to a total drop to WA of 15921.

However, skilled independent applicants tend to make their applications 2 years or so before they arrive whereas 457's are very reactive to the immediate needs of employers. Therefore I don't expect permanent residency arrivals to fall as much.

If you look at ABS population data, there were big falls in the first two quarters of 2013/14 in both international and interstate migration.

Interstate net migration fell to just 244 people in the Dec quarter down from 2300 the previous (2012) Dec quarter.

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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Veritas
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WA is hugely vulnerable to a drop in overseas migrants.

Most of the population growth is explained by international not interstate migrants.

That's why the 457 numbers are so significant.

Note too, the sharp drop in the number of work holiday visa people coming to WA.

Very noticeable on the streets.
Edited by Veritas, 4 Sep 2014, 06:01 PM.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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ThePauk
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Veritas
4 Sep 2014, 05:57 PM
WA is hugely vulnerable to a drop in overseas migrants.

Most of the population growth is explained by international not interstate migrants.

That's why the 457 numbers are so significant.

Note too, the sharp drop in the number of work holiday visa people coming to WA.

Very noticeable on the streets.
Table Six - Short-term Movement, Visitor Arrivals - Intended Length of Stay and Main Reason for Journey: Original

http://abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/3401.0Jul%202014?OpenDocument

Business purposes since 1991 as attached graph...sorry about the x/y labeling etc but you can clearly see it trending down now.
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Attachments: Screen_Shot_2014_09_04_at_5.09.05_pm.png (122.39 KB)
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Mike
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newjez
4 Sep 2014, 04:06 PM
Mike, you seem to be constructing a very good argument demonstrating why you shouldn't buy an investment property in Perth. You've convinced me; have you convinced yourself?

When you add your comments to Jimbo, you are creating the perfect storm. Youre hitting supply and demand.
Buy an investment property, no I would not buy an investment property now. I have said this some time ago.

You are buying at close to the peak of the market, I only expect another 5% growth which is not enough for me to want to buy in at these prices.

To buy to own and live in a home is a different situation, due to low rates and high rents it makes financial sense to own now instead of rent.

If you wanted to invest you needed to be in the market 18 months to two years ago as a minimum.

As I said some time ago, the land I am developing now I bought in settled on in early 2012, I started the buying process (signed offer) end of 2011 when many of you bears said the market would collapse. I was buying.

I also bought a block of land for myself in a prestige area which is also now building, I bought it in early 2012 as well. This block is up almost $200,000, most of that in the last year as this area as really come on.

I would not buy land now, to expensive. I have stated this many times that I am finding it difficult to source large blocks of land to buy to develope R40-R60. Simply to expensive.
The other issue now is getting trades people, as alot more construction is now happening it makes the construction process longer and expensive. As an example a house I built in 2010 during the mini-Rudd Boom I got caught in the middle of that construction boom. That house cost $50,000 more due to constrcution costs and delays then a House built in 2011 or 2012. It was crazy.

So as construction ramps up now, I will wait, let my present builds complete over the next year hopefully I dont get to many delays. Once my present 2 developements finish I have no more land to develope. So i may switch focus for awhile, I have a few subdivisions I can do in Melbourne on existing propertes and a few here in Perth. Until prices settle down again.

I have stated many times that I am no permanment Bull, when the time is right I will be a Bear and be buying again. But that time is not now, not yet.
http://mike-globaleconomy.blogspot.com.au/
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Massive
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Mike
4 Sep 2014, 06:33 PM
Buy an investment property, no I would not buy an investment property now. I have said this some time ago.

You are buying at close to the peak of the market, I only expect another 5% growth which is not enough for me to want to buy in at these prices.

To buy to own and live in a home is a different situation, due to low rates and high rents it makes financial sense to own now instead of rent.

If you wanted to invest you needed to be in the market 18 months to two years ago as a minimum.
and what happens to demand when investor ( or their tenant ) learns to add up 1+1 ?
especially when all this additional supply is being created as you suggest in OP ...

i dont know mike, as much as you are trying to convince us, the picture you are painting is not one suggesting its a great time to buy resi in Perth - for investment or PPOR ... even with rents slightly higher, if can afford to wait it out for supply to come online and save up more deposit it may be beneficial as it appears could be a bit of a drawn out stagnation on the cards ... that's my read at least..

i wouldnt be feeling so crash hot if i was highly leveraged / dependant on rental incomes on IP's in Perth right now as some on this forum have stated they are.. ..
compound with high paid FIFO jobs decline - there will be less money to wash around the higher rental brackets
Edited by Massive, 4 Sep 2014, 06:55 PM.
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Mike
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ThePauk
4 Sep 2014, 06:11 PM
Quote:
 
Table Six - Short-term Movement, Visitor Arrivals - Intended Length of Stay and Main Reason for Journey: Original


The first 7 months of 2013 had 138,100 movements due to employment and the first 7 months of 2014 had 128,200 a drop of around 7%

Quote:
 
Business purposes since 1991 as attached graph...sorry about the x/y labeling etc but you can clearly see it trending down now.


First 7 months of 2013 had 364,900 arrivals for business and first 7 months of 2014 had 356,000 arrivals. A fall of 2.43%

To early to say if it is a trend as one good month in either catagory can reverse the situation. I agree though the data shows movements falling by a small amount.
Edited by Mike, 4 Sep 2014, 07:38 PM.
http://mike-globaleconomy.blogspot.com.au/
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Veritas
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Quote:
 
Buy an investment property, no I would not buy an investment property now. I have said this some time ago.

You are buying at close to the peak of the market, I only expect another 5% growth which is not enough for me to want to buy in at these prices.

To buy to own and live in a home is a different situation, due to low rates and high rents it makes financial sense to own now instead of rent.


Not at all.

Even a modest fall in house prices equals a ton of rent.

House price growth is stalling and the falls are on the way.

Even if the median FTB price fell 5% in a year, that's about 25k saved off the new purchase price, probably more.

You would be mad to enter the market now as either and FTB or an investor unless you had a massive equity stake in a property you would be happy to live in come what may.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?

The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly.
Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
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Jimbo
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Veritas
4 Sep 2014, 05:57 PM
WA is hugely vulnerable to a drop in overseas migrants.

Most of the population growth is explained by international not interstate migrants.

That's why the 457 numbers are so significant.

Note too, the sharp drop in the number of work holiday visa people coming to WA.

Very noticeable on the streets.
Interstate migrants are not significant in numbers but they are an important indicator of what migration is going to do. The interstate migrant can just jump on a plane and come straight over. No visa, no health checks. So they are the most reactive to changing economic conditions. 457's are next in line with the skilled permanent applicants lagging by at least a year. The graph below though, does tend to show a neat relationship between interstate and international migrants. Notice the nosedive on the right.

As for the working holiday visa lot, yes, there are not as many as there were. Perth was like Dublin a few years back. Maybe this will impact the price of a pint in Northbridge.

Posted Image
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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Massive
4 Sep 2014, 06:44 PM
and what happens to demand when investor ( or their tenant ) learns to add up 1+1 ?
especially when all this additional supply is being created as you suggest in OP ...

i dont know mike, as much as you are trying to convince us, the picture you are painting is not one suggesting its a great time to buy resi in Perth - for investment or PPOR ... even with rents slightly higher, if can afford to wait it out for supply to come online and save up more deposit it may be beneficial as it appears could be a bit of a drawn out stagnation on the cards ... that's my read at least..

i wouldnt be feeling so crash hot if i was highly leveraged / dependant on rental incomes on IP's in Perth right now as some on this forum have stated they are.. ..
compound with high paid FIFO jobs decline - there will be less money to wash around the higher rental brackets
It is entirely possibly that by waiting prices may fall a bit over the next 2-3 years.

Does the cost though outweigh the risk.

You can clearly buy cheaper now then it is in alot of areas to rent. The money saved renting is paying off something you own. Will waiting a further 2-3 years for prices to fall be worth while. It is entirely up to personel circumstances. 2-3 years is along time to wait for an event that may not happen. I expect prices to be flat in the 2nd half of 2015 and remain so for a few years but I could be wrong.

It is also possible the trend in Sydney and Melbourne could spread out across the other capitals as investors and overseas buyers chases cheaper properties but in the same stable country. I dont think this will happen, not to any great degree but I might be wrong.

If you are buying to live in an own, the best time to buy is when you can afford to do so, employment is stable. I would never hold off buying a house to live in the hope prices may one day fall or rise.

For me time is far more important then the price of a property. Time is a commodity I never get back so I certainly wont waste it waiting for the right price at the right time as it may never happen, a good chance it never will.

Investment is entirely different.
http://mike-globaleconomy.blogspot.com.au/
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