500K Long term investment - Adelaide vs Perth vs Canberra

With regards to the topic I voted Perth. Apart from mining it's also closest to Asia so it has geographic advantages. Up until recently Perth was also forecast to take over Brisbane as Australia's 3rd largest city. I live in Adelaide and the lifestyle is great etc. but unfortunately we are an economic basket case and the equivalent to America's rust belt states. Look at the net interstate migration rates, household incomes etc. I'd only spend 500k in Adelaide if it was for a PPOR. As an investor I would be looking for capital growth elsewhere.

 

that's good to hear, however I've read on financial review that there is even more mining and infrastructure projects finishing up soon and there hardly any in the pipeline to support those labours. the figure was like 80% in progress and and less than 10% in the committed pipeline and others are in the likely but not committed.

 

Another piece of positive news for perth Nocookies office vacancy down for the the first time in 5 years. Any Perth locals to confirm the positive sentiment?

 

If you look at individual employment sectors, then yes they all peak and trough. Take construction in Victoria and Sydney - multi multi billion dollar boost over the last 3 years from private and public spending. estimated $47bn chinese money, Vic has spent $5bn/yr extra on public infrastructure ($25-30bn total uplift), and NSW also has massive projects on the go. when that ends, we are talking massive potential falls in employment. that's far more concerning to me than a few more mines transitioning from construction to operation. But the government holds some strange air of confidence. I have no idea why, personally i think its a massive risk. At least WA built things that will create revenue and require ongoing operational staff, the eastern states residential boom just seems like a cliff edge. but at the end of the boom cycle, other sectors will always make up jobs because more money will have entered that economy. people will be spending more, inflation will have ticked everything a little higher. WA has been in a "credit unwind". that means the public and corporations have been offloading debt and reducing liabilities. for one person to sell their house and take money to another state, thats like $500k being ripped from the economy. likewise, a buyer entering a market adds to the economy. WA is at the end of its unwind, while other states are peaking. Household debt hitting its limit means people cant pull more finance into the economy. WA however, companies have been doing share buy-backs, people have been saving, and the very low number of buyers means many are in a position to act when the market recovers (Speculation on that last bit)

Latest jobs report shows 52,000 mining jobs were lost nationally since 2012. of those, only 700 were in the last 12 months. There are more sites starting back up, more new sites coming to light, and private/government infrastructure is bottoming with not much further to fall. WA has created 50k new jobs in the last year, and that's despite the alleged continued falls in mining employment. GST revenue is set for a billion dollar boost in coming years, and as new mines/gas plants ramp up production, so too do royalties.

 

thanks for your detailed reply @JL1. looks like most investors on the forum favours Perth and for the right reasons. I am fairly convinced now that Perth would be the right choice out of the 3.

Since like you know a fair bit about the Perth market, can you please tell me some of the suburbs that I should target for my kind of budget and situation? I can spend up to $550k. Thanks in advance.

 

what are you looking for? I think the real advantage in Perth is that its a buyers market. Don't pay too much attention to asking prices, just find properties you like and think what they'd be worth to you and low-ball. You may make 20 offers, but you only need to land one to score the bargain.

in that price range i have 3 favourites:

• townhouse around highgate/north perth/mount lawley. something with a feature that new apartments dont have, like a big courtyard, 2 car parking, or 3 bedrooms. make sure it gets a decent rental yield now and low body corporate or scope for capital gains will be minimal. Something like this should see moderately good capital gains as stock continues to constrain, but its real advantages are decent rental yield and low maintenance.
• Development block in Joondalup (R60) /Currambine (R80) /Heathridge/Beldon (R40) with existing house, 4% gross yield. There have been a few houses kicking around with a 4%+ gross yield with zoning for up to 4 townhouses (depending on R code and block size). these would be a great longer term hold. a house in these areas is around 450-500k, so after the next property cycle they will start to price out their typical FHB buyers. at that point, people will be willing to buy a smaller house on less land to secure a hold in the area. If your property could stage 4 houses, you'll see the real benefits of getting a development site early.
• Scarborough 3 bedroom townhouses, especially with 2 car bays. I say this because 3 beds is enough to comfortably raise a family or get extra rent from house sharing tenants. Land available for townhouses is beginning to dry up, and apartments are taking over the area. a 3 bed apartment will set you back at least 700k, so like above, there is a fading opportunity to secure a family property in a developing area.

Basically the general theme of my opinion is to target a particular asset that is no longer available in the area, and has the good fundamentals of infrastructure projects and surrounding development bringing new life via smaller, higher density dwellings. As the area develops and density increases, the larger, no longer available asset will start to command a premium over its newer, smaller counterparts.

 

Perth blue chip suburbs that have yet to recover from correction of 2007 ie Cottesloe, Nedlands, Floreat, Subiaco would be my pick. If anyone has deep pockets these would be the suburbs to jump into for future potential growth.

We are already seeing multiple offers on the inner city suburbs ie North Perth, Mt Hawthorn etc, cute cottages, millennials jumping into this market, around $1.-1.2M range in demand.
I don't know whether Perth has hit bottom, I will tell you in 6 months time.

I have noticed lots of under offers, but market is still price sensitive.

MTR

 

Thanks for your suggestions MTR, those are great suburbs, but with my kind of budget I think I might struggle to even get a rundown town houses right? I am thinking of "bridesmaid" suburbs close to those would be good idea. any specific one you can think that might suited me?

 

Start reading all the Perth threads this should help. I started a thread..."post a bargain in Perth".

There are suburbs in Perth middle ring that are on large blocks of land, key is development potential here and where you could possibly add value today.

All the best

MTR

 

thanks for your awesome reply once again. This will give me a verygood starting point.

 

• just did some research on Joondalop and realise it's the same distance as Rockingham to Perth CBD. I have personally lived in Rockingham for few months and had some fond memories of the the place. just wondering what is the main reason you would recommend north over the south if are going this far in the outer suburbs ?

 

North is a lot more developed and civil than south. My first IP was in Clarkson WA back before that was the case.

 

Perth for me. Vacancy rates are currently a problem, but if you have a buy and hold strategy then your yield is relevant to holding costs to enable you to see out that growth, not the primary reason to buy a property. Your primary goal is to buy in the market that you believe will see the best growth and, if you can, time that market. Like most aspects of property investment, vacancy rates cycle and IMO it's not a reason to necessarily avoid buying a property, depending on your strategy. You'll just have to accept a lower rent for the short-ish term.

I have always been a little more yield focused than some but that is part of an overall strategy for borrowing capacity and sustaining an 'absolute value' portfolio, rather than only a few heavily negatively geared properties with less focus on yield. As you grow your portfolio you can afford to be a little more flexible in this areas as other properties pick up any slack that you experience.

Perth has a lot going for it and saw plenty of great growth even prior to the mining boom. The cycle will repeat and it is at a great place in the cycle now. We missed out on a property yesterday that opened last Thursday, had 2 offers by that night, 20 groups through on the weekend open and another 6 offers by last night. It was akin to a Sydney purchase and to my mind, is showing that there is definitely uptick in some market there. I'm working very closely with my Buyer's Agent there and we're both in agreement that it's not a buyers market anymore in the northern suburbs, more balanced right now.

Whilst not all markets in Perth might be showing those signs yet, the shoots usually appear before the rest of the garden grows.

 

Approximately how far out does middle ring stretch to in Perth? about 10km similar to Bris?
Or if easier, could you name a few specific suburbs that are at the outer parts of middle-ring just before you hit outer-ring and I could check this it myself.

 

Joondalup is almost half the distance as Rocko, 27km vs. 49km by google.

As @D.T. points out, north is typically the more civilised side of town.

Some reasons i like it:

• Joondalup is a growing satellite city with its first 17 storey tower selling apartments now - population density is going to heave in coming decades which means land will command a premium and more services/entertainment will be built.
• The north corridor is pushing land development limits so infill will start to ramp up. conversely, there is stacks of new land coming on around Baldivis and Piara Waters in the south. Also on that note, most new blocks are too small for future sub-division. and definitely none of them will ever be suitable for battleaxe setups so securing a development site now at normal house yields may be a last chance opportunity. especially around train stations, where new suburbs already have higher density.
• There is a new government building going up as we type which will bring 800 additional workers to the area. Likely also boost local businesses, and give a little more vibrancy to the joondalup cbd.
• The Ocean Reef Marina is being built which represents a huge cash injection to the area, creating more jobs and entertainment.
• Lakeside is (i think) the largest shopping centre in WA. that provides more economic inflow to the area.
• Very family oriented. that = safe, good schools, and lots of established facilities, sports clubs, etc.
• 30 minute train ride to the city. the work commute starts to get pretty excessive beyond that, which will stop the developments further north from being worth more in the long run.

Edit: also ECU for student demand, and the Hospital for elderly.

 

10-20 kms? its a matter of working out what makes sense ie value, infrastructure, development potential, supply, demand, schools etc etc.

I am not currently looking at buying in Perth, but if I was and looking for value and built up areas, limited land.

I prefer the corridor along the south, near Murdoch Hospital precinct and anything that can eventually be developed. Find the pockets that represent value, they are scattered amongst blue chip but lower entry level.. hint hint, ie Willagee, Kardinya keep researching. These suburbs are gentrifying.

 

I bought not too far south from there. It fitted because I was looking for a nice owner occupier suburb with low median price and development potential. I paid $450 for a house that was bought for that price in 2013 and then beautifully renovated to the tune of $50k. I assume they couldn't hold onto the house, so I made money buying it. The work meant it rented immediately for $400pw while other houses in the suburb have sat empty. Buying something that will rent is a definitely a major consideration at the moment.

I plan to hold that one longer term. The suburb is being rezoned so it may have good development potential in the future. I see houses are selling well in the area so I don't think the market is still falling, renting is a nightmare though and I did take a risk with that.

 

Great.

The reason I mentioned Willagee is because it is sandwiched between Palmyra and Melville, both blue chip suburbs, median house prices of these suburbs are at least $100-150K more.

Willagee has been recently rezoned, most now R40, there is huge upside for this suburb IMO as there is very little higher zoning in this precinct/southern corridor.

End values of new product (villas) have taken a beating due to market in general falling back, but location, proximity to Fremantle and Perth, good infrastructure will make it a great long term investment.

There are other gems in this corridor, the new Fiona Stanley Hospital has had major positive impact on this precinct.

Kardinya is an old established area with pockets that can be subdivided, I consider this a blue chip area, but still lower than surrounding areas. Good schools, Chinese demand for this suburb. This is a giant sleeper, during 2013/14 boom cycle could not find any stock here. There always appears to be strong demand and high OO.

The outer burbs of the north that have large tracks of land just dont hold a candle to the potential this corridor has, that's my take on it, but time will tell whether I got it right or wrong.



MTR

 

Agree. I couldn't get into those suburbs at the time because it was an smsf purchase, and nothing fitted those requirements but I'm not far away and should be rezoned R40. Lots of revitilisation planned in the area, which can only make it more attractive.

 

Coolbellup State housing got rezoned, went nuts in 2013/14, now fallen back, however end values will be much lower, not necessarily attractive for developing. This one may be tricky, a little like Girrawheen, another State housing suburb that went nuts in 2013/14 and has also fallen back.