Episode 296: Your Perth Property Questions Answered: Property Prices, Timing, Tax and Strategy

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In this episode of Perth Property Insider, Jarrad Mahon answers the questions Perth investors are actually asking right now, straight from the Perth Property Investment Facebook group - and his own client base.

Buyer confidence is down, most investors have stepped back, and prices have softened.

Almost every headline is saying sit tight.

Jarrad sees something different in the numbers he's looking at every week, and he explains exactly what’s going on.

You’ll hear the answer to 11 important questions - so you can know exactly what moves to make right now in your property investing journey.

In this episode, you’ll learn:

✅ Why the "wait and see" instinct can cost you the best buying conditions in years

✅ What Jarrad tells clients weighing up a purchase right now, and the one thing he checks first

✅ Where Perth prices have actually moved, and how far he expects the correction to run

✅ Why he still backs Perth against the eastern capitals over the next five years

✅ The interest rate assumption he builds every client plan around

✅ Whether you can still offset a negative cash flow property under the new tax settings

✅ What's really happening in investor-heavy suburbs like Baldivis and Byford

✅ When it's worth revisiting your strategic portfolio plan, and when to leave it alone

✅ The free strategic property review Jarrad is now offering Perth landlords

Let’s go inside 👇🎙️

Episode Highlights:

1. 00:00:00 Intro
2. 01:00:00 Buy now or wait?
3. 00:04:03 Investors on the sidelines
4. 00:07:16 Melbourne's slow comeback
5. 00:11:11 Offsetting your cash flow
6. 00:14:22 Baldivis and Byford update
7. 00:17:39 Free strategic property review
8. 00:21:11 Low price high risk

Our Services:

✅Get your Strategic Portfolio Plan and our help with Buying Your Next Perth Property  (https://www.investorsedge.com.au/invest-in-perth-property/)

✅Get clear on your current property’s outlook and the best strategy for you? Email Jarrad for your Strategic Property Review: jarrad@investorsedge.com.au 

✅For More on our Investment Buyers Agency to buy High Performing property: https://www.investorsedge.com.au/invest-in-perth-property/

✅For more on our Home Buying Service to a hassle free purchase and move: https://www.investorsedge.com.au/home-buying/

✅For more info on our award-winning and highly rated Property Management services that give you guaranteed peace of mind https://www.investorsedge.com.au/perth-property-management-specialists/

✅For more info on how our Property Sales services can ensure you get the best selling price while handling all the stress for you https://www.investorsedge.com.au/selling-your-perth-property/

Tools & Insights:

✅Take our Property Investor Readiness Scorecard to uncover your blind spots and make smarter investment decisions before you buy: https://investorsedge.scoreapp.com/

✅Get your Rental Health Score now to ensure your Perth rental property is optimised for returns and sleeping well at night: https://rentalhealth.scoreapp.com/ 

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Episode Transcript

[00:00:00] G'day, and welcome to Perth Property Insider. I'm your host, Jarrad Mahon, and today I'm going into the questions getting asked on our Perth Property Investment Facebook group and other questions I'm getting from clients over the last month. So, lots of interesting ones to cover today, and I've chosen the [00:00:20] ones that are hopefully gonna, um, resound and, uh, give some value to you.

[00:00:25] Even if you're not facing this situation now, you might be soon enough. So let's go into them, and if you're not already a part of the Perth Property Investment Facebook group, head on over and join in the conversations in between, um, episodes. [00:00:40] So first question is: Is now a still, still a good time to buy property or should I wait?

[00:00:47] Great question because a lot of people are asking themselves the same thing, and I would bring it back to, what is your strategic portfolio plan, and how does [00:01:00] this next purchase that you're considering fit within that? If you've got in your plan to buy a certain type of property over certain time periods, and you're trying to build wealth over the long term, and I'm talking five, 10, 20, 30 years, it doesn't usually matter too much about the [00:01:20] little ups and downs if you're buying a quality property that you intend to hold for the long term.

[00:01:26] That being said, we do wanna get the short and medium term timing lined up as best as we can. And when I still look at where Perth sits compared to the other capitals, I'm confident that [00:01:40] it still should be number one choice for most investors, especially if you don't have too much exposure to Perth already.

[00:01:48] If you do, that's gonna be a different case-by-case option where we'd look at where our other locations m-might make sense. We do purchase in other major capital cities, uh, for clients that [00:02:00] do have an over-concentration in Perth. But speaking about Perth, I think it's predicted to hold up the strongest of all the capitals, have the strongest growth.

[00:02:08] That's not to say that it's not hurting at the moment, that confidence is down. Buyers are cautious. Investors aren't, uh, around at all at the moment. I'm only seeing [00:02:20] mainly the s- the self-managed super fund investors that are trying to make a purchase while they can still get lending and get those sorted.

[00:02:26] A lot of, um, other investors have moved down towards the lower price points, but there's, you know, compared to four, five months ago, there's a l- majority are still sitting on the sidelines waiting to see. So I would say if you can [00:02:40] find a property that's still likely to stack up passing our trifecta criteria- And having good prospects for the short, medium, and long term, why would you wait?

[00:02:51] Because at the moment, there's less competition, there's more supply, more choice. Even if the market softens for the next six, twelve, 18 months, [00:03:00] I'm confident that in the next two years things are still gonna come back strong. And it's certainly not the same situation that we had across 2016 to '19, where we were going from the production phase, from the construction phase of a lot of mining projects to the production phase.

[00:03:17] We're in a lot more steadier market. We've got things [00:03:20] like Orcas, things like the Perth Airport upgrade, things like, uh, the refinery that is gonna be built in, in Perth somewhere. All of these things are very positive for adding further demand to our state, keeping, uh, the economy strong, and we're the powerhouse still of all the other states [00:03:40] and territories, um, in Australia.

[00:03:42] So I still think the outlook for medium term is very solid. I think it's a great opportunity now. If it's part of your plan to buy, then I wouldn't be holding back because sentiment can turn j- Positive just as quickly as it's turned negative, and in six or twelve months we may [00:04:00] have the same level of competition we had just four months ago.

[00:04:03] So next question: Are investors still buying or are they sitting on the sidelines? Well, I've pretty much answered that one. The majority are sitting on the sidelines. Interestingly, when I look at surveys of both in the Perth Property Investment, um, Facebook group and other surveys around other Facebook [00:04:20] groups online, I see that investors still intend to buy an established property, ninety-five percent of them, over buying a new property.

[00:04:29] So they are gonna come back to the market at some point, and that m- might be as confidence, uh, continues to increase. We've got our heads around the new tax [00:04:40] settings. When they see that interest rates aren't gonna keep going up, the same for home-- That's what ma- most of the home buyers are mainly worried about.

[00:04:47] When that confidence starts to come back, uh, hard to know exactly when that's gonna be. Is it six months, twelve months, eighteen months? Is it when the government gets thrown out, hopefully, and, uh, reelect, uh, we've got, um, different government [00:05:00] elected? Does that-- Is that what brings full confidence back? But whenever it is, I don't try and pick the exact timing on these things.

[00:05:07] I just make long-term decisions and, well, I make decisions for the long term. So hard to know the exact timing, but, uh, we can know what's gonna be a more quality asset [00:05:20] over the medium to long term, and that's what I would focus on, uh, getting into still if that's part of your plan. Next question: Will interest rates stay high for years?

[00:05:31] Well, I think if Labor's got anything to do with it, they are probably gonna stay around this level for longer. Interestingly, we had [00:05:40] the latest inflation rates, um, come out, and there was a bit of a decrease compared with, uh, year-on-year a month ago. So it's started to trend down and in the right direction.

[00:05:52] I think with the war in Iran, um, you know, continuing to some degree, the world is planning around it, [00:06:00] and Australia's got its fuel reserves in much better, um, condition now. But that has to flow through one way or another to higher overall inflation. And when I say higher, I mean it's probably gonna be floating around these sorts of levels, which will mean interest rates will.[00:06:20]

[00:06:20] And I think this is gonna be the new norm for a while, is my take on it. So I think you plan towards interest rates being at a six percent, um, if they decrease and your holding costs reduce, then that's a bonus. Next question: Is Perth going to outperform the eastern states over the next [00:06:40] five years? Well, when I look at the run that, uh, Brisbane has had, the run Adelaide's had, I'd say that they're further around than us in the cycle.

[00:06:50] I think Perth's gonna likely do better than both of those, just because of the strength of the economy, um, that'll lead to more people migrating, chasing jobs, [00:07:00] and the quality of our lifestyle here. When you look at Sydney and Melbourne, well, Sydney's will have its time in the sun again. Uh, Melbourne is like Perth was in that it's gonna stay down for longer than everyone thinks, and then it'll finally come back pretty hard.

[00:07:16] And I think that's the other, um, city to watch when it finally [00:07:20] gets its state government, its economy sorted. If it does, it belongs, I think, as number two in the second highest priced, uh, capital in Australia You can't keep, uh, it down forever, and it'll, it'll come back. Now, what needs to happen? Well, the economy needs [00:07:40] to improve.

[00:07:41] Confidence needs to improve. I think rental yields need to improve a lot furth-further over there. That's one of the biggest challenges without having negative gearing there now, because the rental yields were still lower than Perth. So for a lot of our clients, even if they had properties in Perth, it made sense to stay and keep buying in Perth because the yield was better and, and now that's gonna [00:08:00] even more so be the case that we don't have negative gearing.

[00:08:03] So Melbourne, we have bought properties there for people when they've got a greater concentration in Perth, and that's the only other major capital I'd really be considering. I've never been a fan of investing regionally or investing in Hobart or Canberra, secondary capitals, so [00:08:20] I, I just think the risk factor and the rollercoaster can be not worth, uh, the shorter term return that you might get.

[00:08:29] And now with capital gains tax as it is, everyone needs to reassess their strategies. I think there'll be a lot less trading in and out of areas. A lot of the people that have got into Darwin will be pulling [00:08:40] out because they don't wanna pay the in and out higher CGT, um, costs, or some of them, uh, will just ride the rollercoaster.

[00:08:47] So again, I think it needs to be now holding for the long term, minimizing your tax and your changeovers and, um, selling when you need to, to, uh, fund [00:09:00] your, the rest of your life and your upgrade, your home upgrade, your transition to retirement, um, selling a poor asset if you've got one. All right, next question.

[00:09:09] Could property prices actually fall significantly from here? Look, I'm seeing about a 5% decrease already on the sort of prices that you could have got four or five months ago, and some of those [00:09:20] prices were gonna be crazy. We, we wouldn't know if it was 50 grand above or 200 or 300 grand above, especially when you use a, a strategic sale to ensure that we get competition and push the price up as much as possible, which is what I specialize in doing.

[00:09:35] Now, it's much more not about setting price records, it's about getting the best [00:09:40] price possible, and the differential's gonna be much greater between an agent that does things really well and an agent that hasn't sold in a difficult market before, because I've sold through 2016 to '19, our most difficult times.

[00:09:54] Um, it's about buyer work, it's about follow-up, it's about working your whole strategy, making sure that you still [00:10:00] get demand, competition, marketing's ever more important, presentation's ever more important, pricing's significantly important. All those things need to work together in a combined strategy for pushing the price up.

[00:10:10] So But individual property types, individual suburbs are gonna be hit harder than others. So best to probably speak to me [00:10:20] case by case. It all comes down to supply versus demand. So if demand has dropped off, and in certain markets it has more than it, than, than others, higher price points are suffering more.

[00:10:33] Lower price points under six fifty are still going super strong. The middle, uh, which I was [00:10:40] expecting to hold up better, has also been struggling now. So it just comes down to, uh, I don't think they're gonna fall significantly, no. I think Perth's still gonna be the best and most resilient of all the capitals.

[00:10:54] But there has definitely been a softening, and there is definitely a correction, and I think it'll [00:11:00] be minor. But we don't know how long it'll continue for. So if you are making decisions to sell, what I know is that it's probably gonna be better now than it is in six months It could take up to two years to turn around.

[00:11:11] Now, next question. Can I still offset a negative cash flow property that I buy now against [00:11:20] positive cash flow property in my portfolio? And I think the answer to this is yes. Time will tell properly. Check with your accountant. Uh, I think there's enough, um, clarity now for them to say yes to that. And what that means for existing investors is that there's no real major difference [00:11:40] for you if you've got reasonable positive cash flow that's at least gonna be to the extent that adding a negative property in is gonna be.

[00:11:49] So, uh, this is the case for a lot of people that have had properties for a while, with, uh, loans getting paid off, rents going up, properties being positive cash flow. [00:12:00] Like, if you're positive cash flow by 12 to 20 grand a year or whatever, add another property in, yes, you can't negative gear it against your personal income, but you can offset it against that positive cash flow of the property, and you may be surprised that it's gonna look basically the same as it used to, uh, cash [00:12:20] flow-wise, when you could offset it against your income because, uh, property income can still be offset against property income.

[00:12:26] So hopefully that makes sense. Chat to your accountant. Definitely worth, uh, modeling out in… with a strategic portfolio plan, and many clients are surprised at the moment because they didn't-- Many people often don't even [00:12:40] realize how positive cash flow they are because when you've got money in offset too, that significantly reduces your repayments that you're making across the board, so it makes more sense to obviously put, to think about, um, building that cash pile up as well.

[00:12:54] Cool. So next question. If I subdivide and develop a property, are the newly built [00:13:00] properties able to be negatively geared? Now, my sh- simplified answer to this is yes. If you create a newly built property, you should get the, the previous tax treatment of 50% reduction in capital gains tax if you hold it for more than a year, and the same, um, CGT treatment, [00:13:20] uh, when you, whenever you come to sell, which is a big benefit to encouraging the creation of new supply.

[00:13:26] And you also get the same negative gearing benefit. So- It's not a magic bullet. Everyone shouldn't necessarily do it. There's a lot of risk involved. It's hard to get the returns to stack up, but we have had Anton on the show to chat [00:13:40] about developing and subdividing lately. Um, so definitely worth considering depending on your overall strategy and the sort of funds and borrowing capacity that you have, the risk appetite you have.

[00:13:54] It's effort, don't, uh, mistake that, but worth considering. So I've been looking more deeply [00:14:00] at some of my properties to see if it stacks up enough for me. I really want a 20%-plus return minimum. Returns are improving in some, on some properties. They're starting to get to that sort of 12, 10 to 12%. For, for me, that's not enough, and 'cause we've really got the risk at the moment that builders can go broke, can take longer than they expect, especially with [00:14:20] extra pressure on the building industry.

[00:14:21] So definitely worth checking in if you've got existing properties. Now, are we starting to see… Someone's asking here, "Are we starting to see prices drop in investor-heavy areas like Baldivis and Byford and Belgo?" This person's asked. So prices are dropping, as I [00:14:40] mentioned, um, correcting compared to the highs we could have got in most areas by around 5%.

[00:14:46] But where there's extra supply coming on, it's, uh, the, softening by more. Now, areas like Baldivis and Byford, they have become a lot more established [00:15:00] compared to the, where they were previously. The- they're a lot more built up. Um, there's a lot less, uh, supply coming on, but they're very big suburbs. So at any one time, they can have a lot of properties that compete with for yours because the, the suburb's just so big.

[00:15:16] So it depends how the demand fares compared to the supply. [00:15:20] I think they're gonna hold up better than they did in the past, especially with Baldivis and, and over the next five to 10 years, I think it's gonna benefit from AUUS because it's close enough there to have that extra demand, um, being added on. I did have appraised some properties there this week, and looks like they'd come back about 5%, but that's fairly commonplace at the moment [00:15:40] compared to most areas.

[00:15:41] The thing is, just because an area had a lot of investors owning it, uh, yes, those areas are a bit more volatile over the long run because investors, you know, don't always hold and can often sell out, in and out, especially, you know, as is gonna be the case with [00:16:00] somewhere like Darwin. You know, the investors are gonna be looking to get out of there because they don't necessarily see it as being a long-term hold.

[00:16:06] But with the majority of other investors, especially what I'm seeing in Perth with our clients, now that they can keep negative gearing on that property, they're not selling unless they've got a good reason to sell. So that doesn't necessarily bring [00:16:20] instability to an area that has lots of investors. The investors are mainly holding So what then matters is, is there still decent demand from home buyers?

[00:16:31] And if, if all the, if the majority of the demand was also from investors, then that's where they're, they're softening more so. So definitely need to look [00:16:40] at it case by case, suburb by suburb. It's gonna be clearer as to how these things shake out because we're only just seeing the sale data come through.

[00:16:49] Anything before May's budget isn't, uh, helpful, and anything that has sold in May takes six weeks to settle. So we're only just getting the first of that [00:17:00] data to show where prices are at in areas. And I'll start to… I'll keep analyzing. You know, every month I do around 100 to 120 appraisals for people, so I'm constantly seeing what is happening to different suburbs, different areas, different individual property types, and that's what matters.

[00:17:17] And if you do want an updated appraisal on your [00:17:20] place, let us know. We've also got a new service that we call a strategic property review, where we look at how it's historically performed, what the outlook is for the future, and does it still meet the purpose and plan that you bought it for To fit into your overall strategy.

[00:17:39] So [00:17:40] that's a great new free service that we're doing for people. So if you do want a strategic property review, get in touch, reach out to me on email. Uh, my email address is in the show notes with, um, some details on that. We're gonna be offering that to all of-- and preparing it for all of our existing landlords once per year, and if you're in my database and [00:18:00] I'm in regularly in touch with you, um, I'll also be preparing one for you once per year as well.

[00:18:05] So look out for that. But if you want one done in the meantime, and you've got an, a decision that you're weighing up, uh, happy for us to do that, uh, for you. Next question. With the new laws coming down the pipeline, what [00:18:20] do I expect to see in areas with fifty percent investors? I think I just answered that.

[00:18:24] It's gonna be most investors are gonna keep and hold for the long term. It's more gonna matter about what side of demand we have and is that still strong from home buyers. So next question. Should I revisit my strategic portfolio plan now that tax settings have [00:18:40] changed? I think if you're intending to make a purchase, I would revisit it.

[00:18:44] I'd probably wait until you're ready and sort of looking at that next, um, addition, because there's not much you can do about it in the meantime anyway. Not- nothing really, is really gonna change for you. But if you're looking at the next acquisition, then that's when we'd [00:19:00] go revisit your strategic portfolio plan.

[00:19:01] Perhaps we were gonna buy bit higher priced properties before. We, we, we now might look at lower priced that are more cash flow friendly, that you can build a bigger asset base, expecting that there'll be some trade-offs on growth, but to get a higher rental yield. So definitely [00:19:20] worth revisiting if you wanna keep moving your plan forward.

[00:19:23] You do-- Most of our clients have a lot of extra equity now, especially because we bought so well in the last couple of years. I would be looking to bring forward purchases to this point of time. If you were gonna make one over the next year, why wouldn't you make it now when there's less [00:19:40] competition, more choice, and, uh, more bargaining power?

[00:19:43] And we're able to get more off-market deals at the moment because, uh, of these conditions. So next question. This one was a bit of an interesting one. I'll sort of paraphrase. So starting out investor, they wanna limit their risk They wanna [00:20:00] therefore, in their thinking, buy as low a price property as possible.

[00:20:04] They're asking, "Where should we buy for three to 400,000?" Now, they're saying that they wanna keep the property for their retirement income later. Now, this might be a bit counterintuitive, and this is where I'm gonna go with it. I think at three to 400,000, there's nothing that you can buy in [00:20:20] Perth for that sort of price range anymore.

[00:20:22] You're gonna have to go regional, like non-capital city, or you're gonna have to compromise significantly on the property that the risk that you're getting into that asset and not being able to get out of it without losing your shirt is significant. So I actually wouldn't go buying at that price point.

[00:20:39] If you [00:20:40] need to save up more money or need to improve your borrowing capacity, I'd work on doing that and increasing your education in the meantime. Uh, you really need to be at a 550 to 600K budget in, in Perth for a unit at the moment. Otherwise, I think the risk of that unit is too great. So I'd be very cautious about what [00:21:00] you're buying, even if you have that 550 to 600K budget, because as I've discussed in the last episode about buying units, there's a lot of traps when you go to buy units.

[00:21:11] So tune into that episode, get your head around it. I would save up some more or increase your borrowing capacity before getting in, [00:21:20] and I would try to be, at minimum, being at 550K. And just because you go lower price doesn't mean lower risk. If, if you take the flip side and presume that you could afford it, actually going and buying a $2 million asset is gonna carry a lot lower risk because it's gonna be in a prime location, in a quality [00:21:40] school zone, gonna be highly sought after if you buy the right property.

[00:21:44] It could have development potential, it could have everything, but obviously you need to be able to afford it to purchase and afford the cash flow. So my point there is not the price point that I gave and, and try not to be overwhelmed by that, but my point is that when you spend more, [00:22:00] you get more of a quality asset.

[00:22:02] It isn't likely to have as much risk associated, and that by trying to be conservative and only spend the l- least that you can, you're actually exposing yourself to more risk, and that's the, the, uh, mindset shift that I'm trying to explain. Hopefully that all makes sense. Thanks for tuning in [00:22:20] to our show today.

[00:22:21] If you've liked it, uh, share it with friends. Chuck a comment if you're watching on YouTube, love to hear your thoughts. And if you do have any questions, um, email me jarrad@investorsedge.com.au. If you want a strategic property review, if you want an appraisal, if you want help with any of your next key [00:22:40] decisions, reach out and I'm happy to help.

[00:22:41] Catch you on the next one. Bye.