Is Perth Too Volatile To Invest?

Hello guys and girls,

Just a quick question I've been thinking about for a while. As we all know, Perth is dependent on mining and can be more volatile than other capitals, say Sydney, Melbourne or Brisbane. As an example, if we invested 10 years ago in Perth we would have probably lost money (or earned very little). And 10 years is not a short time frame.

For a simple long term BH strategy investors, is it better to focus on other markets instead? If we are going to invest for a 20+ year period, we might as well invest in markets that have more steady growth over time.

I remember seeing a report by CBA writing about long term (last 40 years) housing prices in Australia, saying the long term growth has been 7%. But does anyone know what the breakdown of this figure would be for different capitals? I would be interested to see how Perth compared to other capitals.

Cheers!

 

Nope and no. These lines get thrown around all the time and simply ain't true when talking about property in Perth.

 

Love your work!

Here's the link (period 1970-2003):
https://www.google.com.au/url?sa=t&...ggZMAA&usg=AFQjCNF6EoIketWR5vAEiNllwJ4Ta4Cy-Q

Now I just need to source out 2003-2016 data.

 

Steady growth is dependent on so many variables and predicting 20 year time frame well good luck if it actually comes to fruition.

How many investors can work out market conditions today, let alone 20 year time frames.

I have a good laugh when people talk averages of 7% as mentioned, we know markets go up, down, sideways, rounding up % is meaningless. Same as table/graphs with stats, they are just a median, they don't show the full picture and the timeframe can distort the figures and if anything they will confuse. What matters is now/today and what has been happening in a particular suburb/area over the last 2-3 years.

General information will give average results you need to get your hands dirty and ask the right questions to people who know the product and are selling the product and then you source the evidence to back it up. Markets change all the time we can only work on short time frames IMO if we want better results. Ignore my comments if you buy and hold forever and not worried about the growth aspect.

 

One of the data sources I watch is the government's annual 4 year employment projections. It's great as they release the Excel format data behind the report as well. it comes out every November, so the latest release is quite relevant. I have only been looking at it a few years now, but generally seems to be not too far off the mark for the nearest few years.

WA has seen a loss of ~30,000 mining jobs and the 2016 report sees another 14,000 to go. Interestingly, construction has bottomed and is now on the up-swing so it will now help to balance mining losses. The forecast change by 2020 for each capital:

Sydney +11.1%
Melbourne +9.8%
Brisbane +9.1%
Adelaide +5.9%
Perth +8.4%

Though it does not do a year by year breakdown, we can assume that the loss of mining jobs will be at the start of those few years. Looking back over the last 2 years, WA has seen a loss in jobs where other cities have generally seen a marked gain. has this not happened, WA would not have seen job losses, had less outward migration, and way less property surplus. Overally prices would be higher and the 10 year return would not look so bad.

Long story short - the downward few years in WA was hugely impacted by 45,000 job gains then losses in mining. Pretty soon that will be in the past, and WA's market will seem more "normal".

Welcome to the Labour Market Information Portal.

 

Perth is boom and bust due to the mining exposure.

I personally think a market that has gone through a bust (or going through) as lower risk than a market that has gone through (or is going through) a boom.

 

When we had the mining boom business' had to employ from overseas due to the shortage of skilled trades etc. It was an absolute nightmare for manufacturing business' etc as workers were chasing the money up north/mining towns.

The question is what is replacing mining in WA today?

Boom/Bust cycles do not just happen in Perth, they happen around Australia, but investors prefer to call them corrections, semantics, but they are exactly the same. We can look at any market over the last 10 years in Australia and I will guarantee they have all gone through corrections/boom/bust cycles. How far back the property prices fall in a downturn may differ that's about it.
This has happened and is currently happening in Darwin, Perth.

Gold Coast, I think the prices for units due to oversupply fell back as much as 40%? of course this market is now recovering.

MTR

 

That's sort of where I was aiming at.

I've read somewhere mining towns make poor investment choice because their long term growth is lower than in capital cities even though the booms can be much more pronounced. If I remember correctly, the source was saying in the past house prices in capitals doubled every 7 years or so, whereas in mining towns it was every 12 years or so.

I suppose this is not 100% applicable to Perth, but I'd imagine it is to a certain extent as Perth is more mining dependent than other capitals. Of course all this applies only to long term BH investors.

 

I would ignore the old saying about property doubles every 7 years, you can double your money in 2 years, that is if you get the timing right for example Sydney and Melb markets most recent boom cycles.

You can also take much longer than 7 years could be 14 years to double your money if you get the timing wrong and product wrong and buy close to peak. You wont get this time back, that is why it is critical to follow market conditions, this will be the easiest way to make money in property.


Here is a classic example

Anyone who purchased in Western Australia in mining towns or anywhere for that matter in WA during 2001-2006 made an absolute killing in property because all property markets were booming.

Those buying in mining towns in the earlier stages of the boom not only got growth but they also got massive cashflow, because mining towns for example in Karratha started at a low base perhaps $200K in 2001? and the median house price went to $1M at peak 2006/7.

On the flip side those who got burnt in mining towns were buying at close to peak when properties were around $1M median. Why did they do this? greed? not paying attention to the signs that the market was changing, business' were starting to slow down, media reports, China reducing their quota.

The signs are always clear but what happens is many choose to ignore them because its too much fun making money its easy to lose your head in boom times, I know this one.

MTR

 

alot of talk is around the mining boom and its aftermath - for the old-timers, what was Perth like before the mining boom? i.e. what were the main employment drivers then?

 

But it's not a mining town.....

 

It is the most exposed capital city to the commodities cycle.

Everybody here is affected by the drop in the iron ore price.

 

Before the mining boom we had mining and agriculture.

 

I wouldn't say Perth is "dependent on mining". Western Australia and the general economy is indirectly affected sure (more money floating around in the economy equals more spending equals more buying of homes), but Perth is a city of almost 2 million people - it's economy is diverse and recessions happen. I agree it's exposed to the commodities cycle, but you could call Sydney is a mining town if you stretched that logic far enough - Sydney's economy rose rapidly during the commodities boom (just like the entire country) and now its over property price growth has largely stalled.

Honestly I think the idea Perth's collapse is due to mining just a very recent rationalisation used by those wishing to explain away its ongoing property correction, and by those hoping to pretend markets like Melbourne or Sydney aren't "mining towns" and will therefore by safe. I'm not denying mining has much to do with it, but Perth's economy will simply shift back to being driven by consumption and services.

 

how is the agriculture industry doing right now then? would assume it is still ticking along nicely given the perceived quality of Australian agri produce

 

So apparently Construction workers, not mining workers were the ones to lose out primarily during the bust as all sorts of things were built to support mining. Many construction projects have been ongoing since then, however due to classification of worker here, employment figures are a little skewed.

I think everyone that didn't live here already and just came by for the mining boom had returned home now. I don't think WAs market could possibly go back to such high prices for a while though given all the urban sprawl of emptiness.

Agriculture had trouble with climate changes

 

Wine?

 

How ever you want to classify mining construction, the wind down was $200bn in the construction of new facilities coming to an end. Gorgon ($50bn) and Wheatstone ($25bn) alone represent the equivalent investment value of 100+ cbd skyscrapers.

Re. people moving home - latest population data (june 2016) posted a record number of outbound interstate migration at around 2,800 people for the quarter. Jobs continued to fall until October, so no doubt that outflow continued. People are still "moving home", or finding a new home depending what you want to call it.

WA's market will go where supply/demand takes it. High completions at a time of record population growth contraction meant the market was saturated. The data is now split as to whether that will continue as completions, approvals, and number under construction are all falling. However, population growth is falling at an equal rate.

My opinion is going to be heavily influenced by this month's ABS employment data release, which is in line to be the first time in years that WA has 3 consecutive months of jobs growth. That will help to firm up arguments for the bottom of the cycle. Also, Q1 is the year's highest population increase period. I will be watching realestate listings numbers closely through February, which will give some indication to the impact of increased employment. If interstate migration returns to zero, the additional 10,000 people a year in the state would be about the right amount to correct the market at current dwelling approvals levels. What a time to be alive.