WA Perth is entering Boom cycle

The question is
Would a declining market in Melbourne or Sydney encouraging more activity in Perth?

 

At some point yes, but not immediately

 

perhaps majority of Sydney/Melbournesiders who contemplate interstate will flock to the closer capitals as there seems to be a stigma that Perth is "too far" away...

 

I want to share everything I see wrong with the Perth market in two properties. Apologies if this ruffles any feathers.

House A is a new build 2 storey on 341sqm, 35km drive from the city and adjacent to the north's largest land fill site. Priced in at $885k.
38 Vetter Road Clarkson WA 6030 - House for Sale #123092166 - realestate.com.au

House B is an older but liveable house on 774sqm, 7km drive to the city, 2km to the south perth foreshore and 2km to the Vic Park cafe strip. Priced at 775k.
1 Bourke St Kensington WA 6151 - House for Sale #124144594 - realestate.com.au

Even if House A costs $485k to build and finish, that is a land price of ~1200/sqm. Meanwhile a central block goes for 1000/sqm with a free house. No doubt someone is going to buy House A, then wonder why in 5 years no one wants to buy it for $1.13m so that they get their 5% to make the mortgage worth it. Meanwhile an adjacent land release will probably be selling the same thing for 950k.

That right there is why I say outer suburbs will be frozen for a loong time, and growth potential is inner. I do not know of a single other city in the world where people pay so much to live so far from the city they live in, for an asset that is in no shortage at all.

 

@JL1 I absolutely agree. The first one is a display home with lease back so presumably high spec but with land being around $750/sqm up there it's not really a good investment. Clarkson is more a $400-500k area. All the two storey display homes up there have struggled to sell but a few have.

I'd choose Kensington over it any day.

 

Wow that's nuts. I was expecting a bigger block for A. Decent locale but they'll be lucky if it's worth the same in 5 years!
Happily throw 100k at B to get it flasher

 

Obviously seller is dreaming.
Our duplex is built on a similar sized land. Both are 3x2x1. Six months ago, NAB valued both at $820K. Even that's lower than their asking price

 

No, because Perth in decline has nothing whatsoever to do with the performance of Melb and Syd and investors would probably prefer to buy in markets that are stable and where rental yields are strongest.

 

But we are talking listed prices not sales/sold prices. Now go to sold prices over the last 3-6 months and lets get the real picture.

Sellers expectations have nothing to do with the facts, they can dream all they like but does not mean they will get listed price and in current market I would say they have lost the plot.

 

Take your pick:

Clarkson, townhouse, 397sqm, sold a year ago (4/12/2015) for 875k. Take out the 5% median fall and its still 830k now.
218 Ocean Keys Blvd*, Clarkson, WA 6030 - Property Details

Catalina display home, no yard so I estimate ~400sqm block, sold 9/11/2016 870k
30 Vetter Road, Clarkson, WA 6030 - Property Details

Despite that, whether they sell or not they are a statistic to the Perth market. They are a dwelling, a listing, an asking price, and a discount price when they finally do sell. They are an angry owner complaining that they cannot sell in this market. Fact is those asking prices have existed for a while now. I cannot for the life of me understand how a Clarkson townhouse commands the same price as Scarborough, or land near South Perth, but developers make it happen and you do not see anything like it in any other city.

All i can think is that exuberant mining wages allowed people to spend way too much on the suburban dream, and now that is coming back to reality. As Perth becomes less FIFO and more centrally focused, there will be a correction in this arbitrage. Overall the average house price may not do much, especially if blocks like that Kensington one get chopped in half and sold as two dwellings. But what will change is the sqm rate of land near the city. In Melbourne you are hard pushed to find anything under 5,000/sqm central. Go 20km out and its easy to pick up for $1,500/sqm with a house in a nice area. People aren't paying 5x as much to live in the city, they are just getting 5x less space.

 

No expert on Clarkson , but I do I live in inner city Perth and I am a developer.

What we see here is McMansions/primary residences, not what developers are building in these areas?.

One of these homes has 7 bedrooms, clearly these buyers are happy to spend 850K on a McMansion in whoop whoop. If you wanted to buy a primary residence in inner city location, this size home, dependent on area would be paying much more than 850K, put a one in the front at least... $1,850,000

MTR

 

I should have clicked on the first link, OK I see its 4 units in Clarkson for $850K, that is $212,000 per unit

We need to compare apples with apples

75 sqm
75 sqm
119 sqm
41 sqm

You would not be able to purchase a one bedder under 50 sqm for $212,000 in inner city, no way

This is a cash flow play

 

No doubt some great opportunities around for you at the moment

 

Touche, i didnt see that

 

definitely a cash flow play, $850K but you need to include stamp duty. Estimated rent $1000 per week.

But if you consider the sizes of these units, inner city you would be look at perhaps $300K for the studio and anywhere up to $550K for the largest unit. Once again dependent on location, specification/quality of the builds. I am just throwing some basic figures/guestimates I could be off slightly? Have not looked at Perth market for a while now.

 

Australia posts first trade surplus since March 2014

Gotta love WA, and still we give all of our revenue to the other states via the gst!

 

"It sounds so unfair. Across Australia, the GST will give state and territory governments an average of $2370 for every resident next financial year. But the umpire has decided that one will get a lot more, some a bit more, some a bit less – and Western Australia will get just $714 per resident, 30 per cent of the national average.

Moreover, the decision comes as the WA budget is being clobbered by plunging iron ore prices. That could cost it $3 billion of revenue in the year ahead, a 10 per cent drop in its entire income. Not surprisingly, Western Australia wants to change the way the grants are calculated.

But hold your tears. As we will see, there are good reasons for the apparent injustice.

First, the rule Western Australia wants to change is the one that’s given it more than $7 billion over the past four years that would have gone to the other states if the GST money had been distributed in the way it now urges.

Second, the system it wants to overthrow – in which the Commonwealth Grants Commission proposes how federal money should be split among the states, based on their relative needs – has subsidised Western Australia by tens of billions of dollars (in today’s money) over the decades, and that money has come from the taxpayers of New South Wales and Victoria."

 

where is that quote from?

 

@JL1 I would say that A is an outlier, I do agree with you but for this one, if you compare the medium price for that area and you will see a difference

 

this was more of a hypothetical question for the years in the future, if Melb/syd are in a bubble, once they start to experience decline (part of all cycles), what would the reaction be for Perth market? From history we know large upswings = hard falls