500K Long term investment - Adelaide vs Perth vs Canberra

Hey all,

I got an loan approval for an IP at the 500k mark for my SMSF and I am currently looking into various states where I can invest in. Since I got 25 years to go before I can access this fund I am wondering where would be the best state to this money in for the max return and capital growth.

I didn't put Sydney or Melbourne in because I think both are at or near the peak of the cycl. Both does not have Landtax threshold for SMSF or trust. Also $500k does not by you all that much in both cities.
I am too exposed to the Brisbane market as I have a few IP there.
I am now left with 3 capital cities which all have various significant pros and cons.

Adelaide:
Pros: Stable market with low vacancy and no visible over supply issues. Land tax threshold for SMSF
Cons: Still high unemployment, Very weak population growth now and in the past. Being seen as a boring city and compared least favourable to the other bigger eastern cities.

Perth:
Pros: More dynamic market, great live style city with lots of beaches and similar moderate climate to Sydney. It also have a Land tax Threshold for SMSF/Trust
Cons: Very high vacancy although is going down by a little somewhat. Little population growth and a very high reliant on mining export. not sure if bottomed out yet.

Canberra:
Pros: Highest income per capita out of all cities, stable income, might have more short term CG potential.
Cons: No Land tax Threshold ! very concentrated economy which almost completely relied on the government sector. S**ty weather with crazy high and low temperature fluctuation. Being seen as a very boring city and lack of lifestyle options compare to any capital cities.

I really don't know which one is better in my situation so please help me out with this one guys. Feel free to point out anything that I've missed. Would really appreciate your comments and recommendations.

 

Happy to field this one as we own properties in all 3 places.

Canberra is rising but has really expensive holding costs. They're ramping up council rates and land tax and it makes holding on difficult. The market is a bit volatile every time there's an election too. As majority of people work in public service, the quality of tenants is high.

Perth has massive vacancy rate, even my own property there I've had the drop the rent %10+ there to try find a tenant. Property investment is a lot less fun when you have to dig into your own pocket.

Adelaide is a gradually rising market at the moment. Within your budget you can afford to get into some really nice areas, which will certainly help your chances of longer term growth.

 

thanks DT, I was initially very keen on Canberra, but yearly holding cost put me off a bit. Since you have ip in all those cities, if you don't mind elaborate how much are the yearly ballpark expenses(excluding interest) for a house at the 500k figure in the 3 cities?

 

Just trying to think of which ones would be in the 500k bracket you mention:

Dunlop ACT - land tax 3k, council rates 2k. Government there is in the process of tripling holding costs in exchange for abolishing stamp duty.

Seacliff SA - ESL $300 , council $1350

Forrestfield WA - Council $1250, no land tax / ESL but highest PM fees of the 3.

 

All 3 currently have problems...but the question is long term hold. If you buy now and hold for the long term (say >20 years), my money is on Perth - economy, jobs, immigration etc are all expected to be better in Perth than the other two over the long term.

 

canberra has a lot of round abouts so your tires wear out unevenly too!

imo need 550k + to get something investment grade in canberra. and as DT said holding costs are a killer. 30% of my rent goes to rates + land tax. it is ever increasing at a fast rate - give it 5 to 10 years that will be 50%+ (if rents dont significantly jump). but yes i think a safe investment in terms of capital with solid increases, helped by govt costs limiting supply. i would avoid though

 

Thanks DT, Canberra is almost 4ks more than the the others! What's are the standard/common PM fee in % for those 3 cities and how's the net returns compare if we use rent minus all expenses(excluding interest)? Does you Canberra IP has a higher rent to cover at least part of the higher cost?

 

Property management about 9.9 in Perth, 8.8 in Canberra and 7.7 in Adelaide. Canberra does rent for higher and has better quality tenants but not to cover the difference in land tax / council rates payable there.

From memory the insurance costs are about the same.

 

I think you are right JDP1. I think Perth does have have the best lifestyle out of 3, I've lived in Canberra for 3 years between 2006 to 2009, Perth for 3 months for a scholarship in 2005, been to Adelaide multiple times. I was very fond of the time I spent in Perth although I was living in a cheapo unit in Rockingham. As for Canberra, a part from interactions with friends and colleagues, I really don't remember much good time there. "Canberra is a bit of a hole" is a good description frankly. As for Adelaide, it's also very lovely with lots of nice beaches and parks.
As for Perth, The main concern is can it reinvent itself and diversify it's economy if mining boom does not come back in the foreseeable future? What are some of the other drivers for population and economic growth?

 

LOL so true! not to mention the chance of getting killed by a kangaroo driving up and down the Monaro Hwy! I did 200k km on my Honda while there for 3 years traveling back and forth every weekend to Sydney. What's your preference out of the 3 and why if you don't mind me asking?

 

I can't comment on Canberra as i dont track the market there, but thoughts on the others based on your comments

I see significant supply issues solely because population growth is so low. Approvals are at 1 new person per new dwelling (if not higher) so the whole industry is heavily reliant on demolition of old stock. Last year, net interstate migration (net loss) cancelled out all births in the state, so SA is entirely dependent on overseas migration for population growth. Population growth is highly correlated to price increases, so i just dont see any scope for notable price increases beyond inflation.

Advantage IMO is that yields seem to be pretty good, so if cashflow is what you're after, this could be an option worth exploring.

Ultimately in Perth you are buying at absolute bottom of cycle. I'm not too fussed with my perth property for vacancy. Even with rent falls over the last few years you will still easily find 4%+yield. I havent had to drop my rents since 2015 (noted not all are in this boat). Available rental stock has started to fall significantly and continues a downward trajectory, 11,500 down to 9,900 according to REIWA. New build stock is still slowing but is near enough the bottom now.

WA is one of the strongest in Australia for jobs growth this year, so you can expect population will soon follow. with low building rates, the only way is up.

I'm a vocal bull for WA, but consider that the state has the world's largest reserves of lithium and iron ore, as well as major gold and copper resources and is the global lowest cost producer for most of them. pick any industry with economic potential to grow, those minerals will underpin it. construction of mines and facilities is what causes boom and bust, not operational adjustments. WA now has a stable 40 years of new operating facilities, which is a solid economic base for a state. And given their SFA gst allocation, they have a lower reliance on government spending than other states. in a climate where the fed is running $50bn a year deeper into the red, either the spending needs to slow or inflation needs to go notably up.

 

It's taking longer to lease out properties in ADL. All my properties have taken longer to lease compare to years ago, in fact it's getting worse and worse every year. All my rents have gone down since 2011. The main problem is, supply is rising, but not enough population in-fill. Many nice houses in good areas are renting cheap. Council rates are expensive too. A 400sqm block in NE suburb is costing almost 2k per annum.

I actually think Canberra would be the more stable and ideal for long term prospect. The parliament isn't going to move. There will always be jobs there, even though it might not be desirable for people who want lifestyle to live, but the demand is always there. Plus it's smaller, so more concentrate and can hold up well through down turn.

 

The good thing about Canberra is that there is high rental demand, reasonably high rents and low unemployment. A decent property will get rented out pretty quickly (ours was taken in three days most recently and the first 1-2 of those we were having some electrical work and cleaning done so doesn't really count - we had multiple applications). The tenants are likely to be more reliable due to stable work and higher incomes overall. If you spend ~550k (on a house, not unit), you should get at least $500/week rent although you will have the additional cost of land tax

 

what do you guys think of this article ?
There's light at the end of the tunnel for WA jobseekers
It's from the ABC so can't be all that bias right?

 

Perth i think, even tho i have a vested interest in radelaide. Imo significant growth is more likely in perth. As above economy and population issues with adelaide

 

i think just look at the ABS employment data. Based on August 2017 results:

YTD growth in full time jobs:

• NSW: 4.0%
• VIC: 3.1%
• QLD: 3.6%
• SA: 0.5%
• WA: 3.7%

12 months to August:

• NSW: 4.5%
• VIC: 3.2%
• QLD: 1.1%
• SA: 1.9%
• WA: 4.1%

I'm honestly surprised it has taken reporters this long to cotton on.

 

Doesn't Perth have these issues too since everyone left after mining jobs finished?

 

Is the NE property in Tea Tree Gully? The TTG council is notorious for having the highest rates in Adelaide. I agree with you regarding rents though. It's amazing that people live in the outer suburbs when they can literally get a similar house/property in inner/middle ring for as little as $50 a week more.

 

Yes! It's a rip off! You can get decent luxury house in Burnside and pay $500 less than a boring house in TT suburbs.

 

Perth has the foundations of non mining (non mining industries).. Just that these foundations are not mature nor developed to a degree where they contribute significantly yo the local gdp. Mining and agriculture do.
The title of this question is long term. In the long term, I do expect these non mining/agriculture foundations of industry to mature and get more influential to the local economy. there is economic modelling that says similar (government and independent auditing I think).
The problem for Perth is that it's already relatively expensive (being above Brisbane and a bit under Melbourne). It can't compete with these two (for the price of admission) in the short and likely med terms.
Unsure about long term in terms of Perths competitiveness with the eastern cities. I think it will be better than what it is now, but also remember that the eastern cities are not going to sit still either.