WA Perth is entering Boom cycle

Get it set up now

 

5625.0 - Private New Capital Expenditure and Expected Expenditure, Australia, Sep 2016

Despite the uptick in commodity prices since the beginning, new mining investment is just not there at all. In Perth's case the deleveraging of the economy is well and truly in effect. There needs to be a sustained level of high commodity prices and for W.A. mainly iron ore for majors to decide on any new capital investment.

On top of that, even with higher commodity prices and increase in tax revenues, it is unlikely the gov can do much more in terms of infrastructure investment to take up the slack as the budget is running way in deficit.

@MTR : Chesterfield is seeing a recession, or maybe finding reasons not to, so no point discussing. His company may be doing well for now hence his optimism but only time will tell how badly things deteriorate from here on, especially if NSW and Vic economies both go down the drain.

There is no way Perth is entering a boom cycle and this thread should probably be closed for now. At the moment its looking more like USA is entering a boom cycle LOL

 

To be honest I have not watched many other areas besides these ones, because that is where i live. Hence why my views are somewhat lopsided. I agree with you on the primary residence. Investing is also good if you find the right property and have the ability to hold. But I am guessing many investors aim at developing straight away and hence do no care if they pay a little more as long as it is in a rising market.

 

Haha, this thread should be closed. It has a lot of legs this thread. The increased WA GST share will be responsible for more infrastructure projects.. and the NSW/Vic infrstructure projects still have 4-5 years to run until those economies are down the drain and being propped up by WA and Queensland again. Gotta love Australia's cyclical economies.

and the US infrastructure boom.. only a good thing for a sustained iron ore price and WA.

 

Roy hill is a new start up, what other option do they have? Whereas Rio electing to trim costs, and staff....

 

People,
You all need to be aware that has historically low interest rates that has blown this housing bubble up in the first place. It has led to massive over investment in residential property That trend is now reversing, forget about what the RBA does with the cash rate, it is global bond markets that set the cost of funding. Increased cost of funding means more interest paid by everyone including local state and federal governments. Link attached to chart of same.

Australia Govt Bonds Generic Yield 10 Year Analysis - GACGB10

I hope everyone has stress tested themselves at rates 150-200 bp over where they currently are going forward. Interest rates are like gravity on ALL asset prices.

The major mining companies have invested the capital, now they are going to squeeze the last drop of blood out the turnip. More automation = less people and wages.

The "lithium boom" is minuscule compared to what was spent on iron ore / gas capex, so dont hang you hat on that.

Population growth is declining in WA, a lot of my friends (Professionals) have pulled stumps and headed East as there is no work here. They have been replaced with Uber drivers on dodgy student visas who live 15 to a house 4 to room or refugees who will more than likely be long term welfare recipients. Hardly the type of people who are likely to have high disposable income to spread through the economy?

I see what is happening in Cloverdale everyday, still they build units like there is no tomorrow, with many more to come onto the market. The pain has a long way to run here.

Also high density single dwelling housing on subdivided blocks is still being built. Who is going to get a tenant out of these 2 houses?

reiwa.com - 1A Tilby Street, Cloverdale

reiwa.com - 33 Finnan Street, Cloverdale

Buckle up Dorothy, Kansas is going bye bye.

 

so why do investors/buyers ignore this? now is not the time to buy in Perth

thanks for sharing

 

I think it is because most people are not old enough to have lived through a full blown national recession. I have 25 years ago. Last time it was Corporate blow ups Bond, Skase et al and commercial property but the knock on effects everyone. Unemployment hit 11% nationally, double what it is in WA today.
Interesting debt to household income (Mums and Dads) was circa 60% then, now it is 185%. No experience and therefore no fear.

 

Unless perhaps if using money you can't touch for years anyway e.g. smsf. Very good/possibly the best buying for development potential blocks at the moment with a long term outlook?

 

Also if there are opportunities to add value and have a cashflow positive development site. In that case my question is why not buy? If I was looking to buy now in mainland Australia, I would most likely pick Perth anyway. Short term pain, long term gain.

 

That is one strategy but if you can achieve growth and income now I would say that is a better option by a long shot.

 

I'm attempting to do that somewhere else. Can't be doing every strategy in all markets at the same time, it's too tiring and I haven't got enough money

 

Yes, I agree, everyone wants to buy and live in hope but it makes little sense holding property when the income has been hammered that is the ultimate irony. Now we are seeing interest rate rises and this has not been considered.

As far as buying development sites, prices have not come back to last boom price of early 2013.

Developers don't build if it does not make sense, therefore it is likely we will see further oversupply which in turn means fall in property prices. Land banking makes little sense when the economy is going pear shaped.



MTR

 

I think buying in Perth only makes sense when yields increase (from lowered prices) and vacancy rates start to drop.

 

yes, I agree but we are a long way off this

What will it take for yields to increase?

At the moment we have an oversupply and people coming to live in Perth has dropped off significantly

 

Yes but Iron Ore is up 88% this year. Population is still increasing by 30,000 a year.
Im not saying its rosy but its not the end of the world either.

 

Yes the iron ore has risen, unless you hold shares in the big 3 miners you won't see to much in way of a benefit. Sure the state government gets increased royalties but the state is laboring under a mountain of debt in an environment of rising bond yields. Yield on AAA (rating soon to be removed) rated Commonwealth 10 years have risen over 100bp in the last 3 months, the yields would be higher still on lower rated WA state paper. Say rates just lift 150bp, on 40b of forecast State debt, that alone equates to an extra 600m pa interest cost. Also the increase in iron ore price didnt stop RIO recently letting go of another 500 people, did it? The point I made before people are underestimating the pace of automation. Recently I read that another one of the majors has ordered 140 driverless trucks. That equates to circa 450 truck drivers using a 3 panel roster, who won't be needed in the future. 450 x 150k pa wages = $67.5m in wages a year that won't be in the economy. 30,000 a year of 457's, in low paid jobs, or Uber drivers on dodgy student visas, or refugees on welfare are not going to turbo charge the economy like the 40-50,000 high paid construction jobs during the capex construction phase did. The big miners are very focused on costs now, ask anyone who works for them as either an employee or contractor.
Its all well and good to be positive but you must also be realistic. When the East Coast bubble pops the Commonwealth finances will be in world of pain, so there will be nothing forthcoming from them to save the day here, trust me. Dont forget 90% of the votes are in the East of the Country, where do think the focus is going be?

 

Yawn. Personally I don't hold much weight in macroeconomic speculation - both from the 'experts' or players at home.

Just gonna keep my eye on the market as someone on the ground. Personal experience and experiences from others on here is that we will get plenty of warning if the market starts turning.

 

I hear you, but if using money that can't be accessed for 15 yrs or so what difference does it make? I don't think there are any markets in Aus currently that are booming. Even if they were they wouldn't be booming for 15 yrs. I'm expecting whatever I buy to be subject to a cycle including a flat period. Personally I still think Perth is a better longer term bet than Tasmania and it wouldn't be possible to buy the same product in NSW or Brisbane at my price point. So, if looking to buy something in Aus with smsf I think it's not a bad punt. We can't all jump across to US and buy multiple development blocks

 

Looks like median house price in Perth is still slightly higher than Brisbane with more potential short term growth in Brisbane than Perth?