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Australian Property Market: Looking Across The Nullarbor

 

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The Perth property market continues to offer the best value of all Australian capital cities. Markets on the east coast are currently coming off extreme highs, which in particular saw Melbourne and Sydney continue on a strong upsurge for several years.  Local commentators stated it was the greatest real estate boom in over 100 years!

The ripple effect passed onto other capital cities, notably Brisbane and Canberra.  As always, Perth remained out of sync and behind the trend.

Government bodies became concerned about the heat of these markets which, to a fair degree, were stimulated with low interest rates. The APRA (the Australian Prudential Regulation Authority which regulates banks and financial institutions), constricted policies tightly, slowing the markets of Melbourne and Sydney, which in turn conspired badly against the already soft Perth property market, as Perth is already reeling from the current down turn in the mining and resource sector and the continuing over supply of new stock to the property market.

The Reserve Bank usually uses the interest rate trigger to slow down or speed up demand but with all other fundamentals in play, the last resort was to adjust the lending policies and criteria. You may remember during Perth’s last boom the East Coast was in the doldrums and the banks reduced interest rates to help the east coast recover. It just added further heat straight into our market for more prevailing boom conditions in the west, yet only mildly helped on the east coast.

A year ago iron ore prices were double, oil prices have continued on the same downward spiral whilst WA has lost its favourable credit rating and the overseas, and predominant Chinese market, continue to favour the east coast. This, along with current residential vacancies tipped to reach 6% and CBD office vacancies to exceed 20%, seems to stack the odds against enticing buyers into the market. This then creates the perfect storm for the prudent property players brave enough to jump in and secure an undervalued asset.

The greatest investor of all time Warren Buffet has made his billions by zigging when everyone else is zagging. Known as counter cynical investing, this is how prudent purchasers around the world create serious wealth.

Look at the below REIWA figures for the 30 year range of 1974-2013. See how there is hardly any downward movement? If you look closely enough you can pick the recession ‘we had to have’, the Asia Pacific crisis, the ‘tech wreck’ and the global financial crisis which clearly show that despite these tumultuous times, property prices rarely go down.

Perth House Prices

 

What we now clearly see happening now is that smart east coast investors have sold up in the boom, come across the Nullarbor and purchased two or three times the value here in Perth. They have capitalised on properties such as the old Myer 500 apartment development site on Beaufort Street Northbridge, to large commercial income producing properties, down to individual investment properties.

The exodus has started from across the Nullarbor and with our strong economy, huge natural gas, agricultural and tourism industries, Western Australia has a lot going for it, although everyone seems hard pressed to recognise that currently.

As many wise investors will tell you, it is all in the buying and it is a great time to buy right now, lock your interest rates down and watch your property significantly grow in the coming years as we bounce off the bottom. You just need to be brave enough to move out of the herd mentality. ZIG AGAINST THE ZAG.

 

 

Source Mark Hay
March 1, 2016
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