Here I bring you my latest Perth property market update… taking a deep look into the sale market, rental market, impact of the 2015 federal budget, APRA lending change and how to prepare yourself for our buyers market!
See the video here and the graphs and transcription below.
See the graphs I speak about here
See the transcription here
June Perth Property Market Update – Prepare Yourself!
Good day! Jarrad Mahon here from Investors Edge Real Estate bringing you my latest Perth Property Update for June. Really excited to be with you. I’ve got a lot to cover today so stick tight, grab a coffee, put your feet up and take it all in.
So let’s launch into the market, this update is called Prepare Yourself. I’m gonna go deep into where things are at in the Sale Market, the Rental Market, some of the changes that are going on at a National Level and also going to cover what you can do to prepare yourself for what’s to come.
Perth Sale Market
Going straight into the Perth Sale Market. Since I came to you 2 months ago we’ve had a hell of a lot of changes for the worst in our market. You can see that number of properties on the market, at the last time I came to you was about 13,900, high 13,000s and now we’re up to 14,300 around. So we’ve had, month increases over the last couple of months, we’re sitting now at that level. Things are progressively getting worst with supply. We’ve got more properties available for buyers to choose from which means that you have to come on and be realistic with your price in order to get sold. We’re technically crossing over into more of a buyer’s market now and that means is that buyers are more likely to say here’s a cheeky offer, take it or leave it. But once we find the price in the market, properties are still selling in that 4 week period and if they’re not, they’re going stale and the chances are getting a result drop off drastically after that.
So looking at the number of properties sold per week, you can see that we’ve actually had a few extra sales going through per week over the last two months so that’s a semi-positive sign that we start to get a little bit more traction to clear properties off the market but nothing too much to be excited about.
National Property Clock
And this is what I really wanted to cover, take a look, picture the market as all being like a clock, we have our peak of the market at the top (12 o clock) where Sydney, Newcastle, etc., are at, this is from Herron Todd White. Then there are those areas that are starting to decline and then we’re going to a declining market (at 3 o’clock). That’s where Alice Springs, Darwin, Perth etc. are at now. I was over in the Northern Territory last week and I can say that their market is very similar to ours except that they’ve got a lot more trouble in renting their properties than us and it could be sign of what is to come, but they’re obviously a bit more impacted by the mining sector than we are so they’re gonna feel it a little bit harder.
Then we move around to approaching the bottom (6 o’clock) so that’s places like Gladstone, Bundaberg, Rockhampton, tipped at being at the bottom of their cycle. Then, they start their recovery and that’s places like Adelaide, Hobart, South West of WA, so not a bad time to look deeper at our South West. And then they’re going to a rising market (9 o’clock), so that’s places like Brisbane, Ipswich, Cairns, Gold Coast and I’ve mentioned and run a seminar on those areas recently and they are not a bad location to look at if you wanna get more shorter term gains. Perth represents a great time to start preparing for opportunities and I will go into that a bit more later.
Perth Rental Market
So the Rental Market, this is a map showing all the suburbs we’re managing, pretty much the whole of Perth, 128 suburbs, so we have great insights into what is going on.
The number for rent when I came to you 2 months ago, I was hoping the number of properties for rent was gonna stabilize but it actually continued up month per month quite drastically now. We were at 6,500 a now at 7,834 of properties for rent, so that’s really starting to now flow through to our median rent. We held at $440 there for quite a while, I thought we would stabilize but there’s gonna be further falls to come as that median rent statistic shows up the large number of properties available for rent. There’s a lot to choose from for tenants!
So again, the same principles apply in the rental market, we have to train all our leasing managers as if they’re a sales person, giving them those skills to get a property rented quickly. We’re still getting properties rented within 2 weeks once we find where the rental market is. We need enough quality tenants applying to have choice. We don’t wanna be sitting above the market and get that desperate tenant that needs a property or has got not quite a 100% solid background. We wanna be choosing between quality ones. Once we find the market we are renting quickly but we generally seeing are seeing a 10% drop in most areas and some suburbs are still dropping, so just be prepared for that.
Rental Vacancy Rate
Rental vacancy rate, we were holding at 4.1% of the last 2 months, we’ve seen it go to 4.4%, which is a big jump from last month and we’re now at 4.5%. I expect that it will continue to move upwards as the number unless the number of properties starts to come down.
Federal Budget Summary
Now the Federal Budget, we’ve all seen it on the news, we’ve all heard it talked about, but I’ll just cover off what it means for us as property investors. There’s no big changes to taxes on capital gains, superannuation no big changes there and self-managed super funds no big changes there.
There are talks of reforming finance and other things in that space but nothing as of yet and there’s no big changes for negative gearing or depreciation. There is talk about abolishing negative gearing so that’s something that I did write about end of last year and it’s now starting to get a bit more attraction whether or not, they’ll ever do that. There could be massive impact to the market and they could actually backfire on them, which would see many investment properties come off and rents sky rocket and really change our market like it did when it was last taken out so watch the space on that one but no changes as yet.
The main part of the budget was incentives for small business and they’re really hoping to create jobs with those. I’m still skeptical as a small business owner as to how much real impact that will have. Certainly better to try to improve that area than not but the changes cost us many billions as an economy that really, honestly to me as a small business owner don’t mean much. So if it does flow on to more jobs that will only benefit the property market, so wait and see.
In the budget, was also a lot of commentary looking into the long term outlook for the pension, which really remains in question. The government is starting to push the responsibility back on us to grow our own wealth. I can see that in 20, 30 years to come, there probably won’t be a pension and some countries around the world are already starting to move to that so really it’s better to take action today and start getting your plan together and not wait until it’s too late.
APRA Lending Impact
So, APRA, they’re the regulatory body for the banks that insure the banks and they’ve made a lot of changes to their regulations lately. They’re starting to flow through and impact the banks. So what does that mean? What’s happening?
Well, there’s now a tighter assessment for investors as they are not counting negative gearing in their calculations anymore. So even though negative gearing exists, the banks are not counting the tax break back towards your income.
And they’re also discounting down the rents counting toward your income column by anywhere from 20% at NAB & CBA and Westpac’s discounting it down by 40%. That also tells us what the banks outlook is for the rental market. They’re trying to obviously be more conservative and not count on that rent remaining as high and protect themselves.
So that’s a big blow because it reduces our overall serviceability in the banks eyes.
And they’re now also, even though you may have an interest only loan, the interest only loans in Australia typically run for 5 years interest only and then switch to Principal &Interest. Previously banks would just class the expense column for you as the interest only amount, now they’re counting and assuming that it’s gonna go to Principal & Interest. There’s no guarantee that you’d be able to refinance over to an interest only loan so that’s also reducing your serviceability assessment meaning we can borrow even less as investors.
It is reported that the generous banks were prepare to lend as much as 50% more than the tighter banks. So now, we’re finding a much more even playing field for the banks and it will mean that we’re not able to borrow as much.
So, it’s not necessarily a bad thing personally but it will just mean we’re gonna be force to be a bit more conservative. What will happen in that impact on the market ultimately could be a bad thing.
It will mean that there’s less investors purchasing, less rental properties provided, it will start to slow our market, it will be more difficult for investors to enter into the market and I can only see that having a negative impact over the shorter term especially for Perth and Darwin and those that are already in declining market, it’s not gonna help us.
Tips to Survive & Thrive
So, finally I’m gonna go into some tips to survive & thrive this market. Many people might listen to what I’ve just said and be all doom and gloom about it. I actually see the other side of the coin, see the opportunity that when we go through a cycle, you can come out the other side of it and be set for the next growth phase. Now that’s the exciting thing for me, but you have to be more conservative, you have to get all your ducks in a row and not expose yourself so that if interest rates do start coming up, you can afford to still hold your property.
And if you do get that slight bit of extra vacancy on your property or your hot water system goes, you’ve got the money to afford those things. The last thing you wanna do is have to sell your property in this market. So prepare yourself to hold onto your property over the next 1 to 2 years.
Other things that you can do so that you are not ever forced to sell your property is to get your cash buffer together, have at least $5K in cash or equity that you can access with a snap of your finger, that’s what you need.
Free up equity, now, it’s great to ask for money when you don’t actually need it and right now and over the next 12 to 18 months, there’s gonna be some amazing opportunities to purchase property at great discounts.
When you haven’t got lots of other competition, you need to start getting your finance together to take advantage of those opportunities. So, free up equity in properties where you do have the equity and set up line of credits, get the money ready for a rainy day or for picking up a great purchase. We are already noticing much better deals, so prepare yourself for that.
Next point, be open to opportunities. It’s so easy to watch the news and run for cover and do nothing but if you remain open for the right opportunity for one that stacks up, that is gonna be putting money in your pocket each week.
There’s no space for nothing that is negatively geared. Definitely do not buy a property if it’s negatively geared unless you’ve got a very clear plan to develop it. And even then I wouldn’t be looking at going into any large developments unless your numbers are fully stacked up and it’s becoming harder and harder to do that so you really want quick in and out smaller developments that you can control and not be over exposed in.
Of course, if you’re weighing up a sale and you really need it done for your personal situation let’s say, you wanna retire or say you want to pay down personal debt, just consolidate a bit, then now is the time to sell not in another 6 months’ time.
If you are gonna sell, sell now, otherwise, prepare to hold and wait for the next 1 to 2 years. It’s certainly gonna get worst over the next 6 months before it gets better. We’re still selling properties now and once we found the right price you can get your sale.
And finally, probably the most important point is now is the great time to re-assess your plan. And I’ve got John here working closely with us, he’s got 20 odd year’s property and investment experience and he’s able to sit down with you one on one and go through your investment plan and now is the great time to do that. So feel free to just reply to my update and we can book you in for one of those.
Finally, I wanted to cover off my next upcoming event I’d love to see you at, we’re going through the Basics of Building New Investment Property. And all the benefits that you can receive from building- high depreciation, you’ll be positive cash flow from the start, attract quality tenants, and build in some equity as you go.
We’re running that in cooperation with Ventura fantastic builder and that’s at their showroom, we’re able to touch, feel, look into, learn how to build to suit your tenant, maximize your rent and future sale price as well. So really great stuff is going into that seminar and we run it couple of months ago and we had fantastic feedback, so we’re running it again.
I’ve also got a very special offer for you guys watching. You’re able to get free tickets if you use the promo code: IEVIP
So, go to www.investorsedge.com.au/build and grab your free ticket, that’s coming up on the 30th of June so that’s next Tuesday evening. It will be a great night and I’d love to see you along there. Thanks for listening to my update and do drop me a line on email, just tell me what you’re up to, be great to connect with you!