WA Understanding Perth property market fundamentals

Hello guys

I am new to Perth and Australia.I would appreciate if you can help me understand the investment property market a bit.I am currently sharing a house, however, I am thinking if I could buy a property and share it with others.Why pay rent instead if the same rent can be contributed to your own asset.

1.Which is ideal property-house or an apartment? Why?

2.I am looking at a 20-year-old apartment(a hotel room) in CBD around(180K) which has a return of 8 to 10%, when leased out on Airbnb.What could be demerits of such a property investment?

3.How do properties depreciate?Do rents remain stable especially if the property is in CBD.

4.I believe the returns in real estate in WA are based on demand generated due to people moving in for jobs in mining.The iron ore prices between 2003 to 2014 were around 80dollar approx, which created jobs in mining and hence people moved in from other states.However, apart from this time frame iron prices were pretty much constant around 20 to 30 dollars.May be the boom we saw as probably once in a lifetime.I am curious what if there are fundamentals left.I feel tourism to WA may increase and hence CBD apartments for airbnb may have good occupancy rates.

5.What suburbs are preferrable?

Any pointers would be highly helpful. If anyone wishes to know about investment/foreclosed property market in Japan,I would be happy to share my knowledge

 

In my world, house always wins over an apartment. Scarcity factor, you can’t come up with a house from thin air. You need land. Appartments can be build en masse on one lot. Also no body Corp fees. People love the independence it brings.

There is no such thing as stable. Ever. Rents in Perth almost halved due to the bubble bursting after the mining boom. If demand drops (example people move east cause that’s where the jobs are) rents and prices go down. Economics.

 

Hi @radioactive ,
In relation to Q2: there is a huge influx of hotel rooms under construction or planned for the Perth CBD and inner metro. I would exercise caution picking one up as a an investment at this time.

 

Ditto

 

I don't think so. I reckon if not boom there will at least be a return to strong commodity prices within the next decade.

 

Prices are dictated by supply and demand.
Developers can continue buying houses knocking them down and then building more and more apartments almost endlessly.
However, you ca not just make more land.
This is why apartments grow much slower than houses on their own land.
The (sort of) exception is within about 15km from Sydney CBD because most of the city has already been converted to apartments plus demand is ridiculously high and has been since population started being recorded (much the same as new york, london, hong kong).
Apartments can still sometimes make sense if there is something scarce about it that makes people want to buy there and there is a limited amount of whatever that is - for example beach front apartment, again because there is a limited supply. If you are buying an apartment for affordability (ie cheapness) then by definition that does not have something in limited supply and I would steer clear of apartments.
I would definitely go for a detached house if you are buying in Perth.

You are looking only at yield when you say 8-10%.
Lookup something known as the "yield trap"
You need to factor in both growth and yield or you will pay a hefty price for it later.

Properties depreciate the same way cars and boats do. Over time they just get worn out and need to be replaced. It is the land that appreciates over time. This is why you want a house on its own land and not a cubic space 10m up in the air in the form of an apartment.
Also the same reason you want a house that is not new - because just like cars and boats, the value drops the most in the first few years before dropping at a much lower rate.

I would say more than likely when property tripped in 7 years that was probably once in a lifetime. That doesn't mean there will not be cycles - just they will be less insane.

As for what suburbs - I suggest learning a few different property investment strategies first before learning the locations because different location types suit different investment strategies.

 

There's no guarantees when it comes to investing in any market. Prices can go up, and down.

The issue with hotel rooms is they are unlikely to show much sales return, but they are generally managed and can provide a decent return on investment. There's no guarantees though. It's unlikely it can be rented through AirBnb. The whole incentive for investors is that the hotel chain normally manages this, and the room, so it's less likely to be trashed and ruined than most properties because of people on site all the time.

No one can tell you which is the best suburb to buy in, it depends what you want and where you need to live, combined with budget. You can spend time in a suburb and talk to people you know who live there. Look at crime history, cost to insure the house will tell you what crime is like compared to other areas, look at whether there are shops in the suburb, schools near by, parks and walks. Look at whether or not this area does well in a recession.

Houses tend to be better to live in, less crowded, outside space. House over apartment given the choice. I would consider a well built town house with outside space though.

Property depreciates as it gets older as a rule though plenty of people seem happy to pay the same for an older property, as new. In a recession that mentality may change and older houses are more likely to find themselves with a loss. Property costs money to maintain and fix.

You are right, mining can make property prices fluctuate in a place like WA where it is relied on. As can any loss, or gain, of major job creation industries.

 

https://www.planning.wa.gov.au/dop_pub_pdf/housing_summary_report.pdf
Summary: Just about everyone wants to own a home. Vast majority in perth want a 3 bed detached house (not an apartment) but if contrainted by income will take a apartment (must be atleast 2 bedrooms). Price and location are the two key things. Generakky the closer to the cbd the better

 

Their is still a lot of undeveloped land around Northbridge that can become high density. And East Perth also has a lot of land around riverside that can be developed into apartments.

So unless you a cash flow investor (dual occ NRAS type of thing) go a detached house. The eastern suburbs are currently less desirable but they are close to the city and cheaper.

The western suburbs are clearly the most desirable and they are priced that way already so they might not be in your range.

And rents are not stable in a city highly leveraged to volatile commodity prices.

 

Depending on size may be difficult to get finance also expect LVR to be circa 60% if available.

 

Interesting as that concurs with a book I read saying that as home size/quality increases, there is an optimal point above which the investment doesn't give you an equal return. So for example, if there is less demand for 4 bedders, then building a 4 bedder will not produce the equivalent proportional increased return over a 3 bedder due to lower demand for 4 bedders and so the cost would be wasted to develop it.
No idea how to check the demand of a 4 bedder vs a 3 bedder for a particular suburb though.
I guess for purchasing, maybe you would go by DOM of each type. For renting I don't know.

 

Personally I think speculating based on "fundamentals" is a waste of time compared to just getting out there and knowing the market or specific mini markets very well.

 

At the moment you can pick up older style (early 1980s era) brick and tile 3x1 houses on 500-700 sqm in the outer suburbs from low $200k -$300k, still only about a 5 min drive to the train stations.
Many of these are ex rental stock and due to their age and the oversupply on the rental market are being flogged off due to being untenented.
Better suited as a PPOR ,the ex rentals are pretty easy to spot, lack of landscaping,reticulation,sheds patios and pergolas etc .
Many of these areas have seen lots of units and apartments built close to the train stations, so the owners are trying to compete with these newer apartments that are 5-15 years old.
Go back to the late1990- 2000s , these places were going for about 110k and by 2007 around $350-400k at the peak.

 

1. Generally a house is easier to share as it may be larger. It also won't have (0r very little if in complex) body corporate and strata fees. Houses generally have lower yields but higher capital growth in most generalisations - there are always exceptions to the rule.

2. a hotel room style investment does not give you the share house idea in your intro. There might also be rules where you yourself cannot live there ever and is only available for short term let. Whilst it's yield is attractive with air bnb that is a relatively new idea and under normal rent the place might be a poor investment.

3. Generally building/construction depreciates and land appreciates. Rental market in Perth is not stable and is all about supply and demand even in CBD.

4. Mining doesn't equal iron ore. The resources industry in WA does play a major role in the economy but it is so much more than just iron ore. When the resource price goes up new projects become feasible and new mines/sites/projects come online and will generally require a lot of start up employees but once created will only require a third or less amount of people - the last boom that ratched prices up in Perth was due to the massive influx of people to build/construct project. Once finished the bust came when they were no longer needed.

5. This is a hard one as it depends on the demographic that you are chasing. The inner 5km ring is very popular but there will always be plenty plenty plenty of 1 bedroom apartments. It can be wise to go for something that is not the norm.

 

Which suburbs in Perth are worth looking at from Investment perspective?

 

The piece of string is roughly 3m long

 

Yup, I get your point. But there always some hot developments going on which could make any area very attractive.

 

Sure but that doesn't make every kind of property in a hot area at every price point a good investment. Eg buying an apartment while theres a city wide oversupply will not be a good move even if you buy in an area that is outperforming the general Perth market

Someone who bought some of the Mossie park bargains at 1.2-1.4 in 2015 and 2016 would be sittjng on 1.6-1.8m now and someone else who spent the same amount buying the wrong kind of Mossie park property would be the proud recipient of maybe 100k in capital gains max, think about that

Someone who bought 8 Bateman rd Mt pleasant in June 2017 for 2m could sell it for 2.8m today but someone who spent 2m building nearby would have a property they'd struggle to get 1.8m on, that's 1m difference in 12 months

I can keep going with examples at other rpice ranges too, the point im trying to make is that this forum can be a wealth of knowledge but unless your query is more specific you'll get a much less helpful result than what you're likely to to get from anyone as it stands

 

Thanks for your feedback.
I am looking for PPOR under 400K with the potential of capital appreciation in future.
What areas would be worth looking for?

 

Do you have any preferences on the area you want to live in?