Ep 80 | Perth Property Has Changed. Are You Still Playing by the Old Rules?

Perth's property market has been one of the hottest in the country, but the federal budget changed everything. In this episode, Capital Partners founder David Andrew and Aden Wilkins sit down with Rowen Powell, director of Verve Buyer's Agency, to unpack what's happening on the ground. From the collapse of investor demand to skyrocketing building costs, the rise of subject-to-sale offers, and why quality has never mattered more - this is the most honest read of the Perth property market you'll find.

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Chapters:

(0:00) Welcome & Wins of the Week

(3:30) What a Buyer's Agent Actually Does

(5:30) Perth Property by the Numbers: From $840K to $1.35 Million

(8:00) The Psychology Shift - From 'Get In Quick' to 'Get It Right'

(10:30) The Cascade Effect: How Buyers Are Being Pushed Into Bridesmaid Suburbs

(14:00) The Federal Budget's Impact on Investor Demand

(18:30) Why Building a New Home Just Got a Lot More Expensive

(22:00) What's Happening in Different Price Segments

(26:00) The Return of Subject-to-Sale Offers

(30:00) Red Flags: Mistakes to Avoid When Buying in This Market

(37:00) Parents Helping Kids into the Market: What's Changed

(40:30) What the Next 12 Months Looks Like for Perth Property

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Recorded and produced by Podwave Studios: https://podwavestudios.au/

The Purposeful Investor Podcast is a public service provided for Australian investors wanting to make smart decisions with their money, avoid costly mistakes, look after the people they care about, and, have a great life!

We draw on over 30 years of experience from David Andrew and the Capital Partners team.

For more information on Capital Partners' award winning team, visit capital-partners.com.au.

Have a question? Email us ask@capital-partners.com.au.

This episode provides general advice only. We do not consider your personal circumstances when we share this information. Always refer to your financial adviser for advice about your personal circumstances. 

Capital Partners Consulting Pty Ltd AFSL 227148 trading as Capital Partners Private Wealth Advisers ABN 27 086 670 788.

Transcript

Teaser Stats And Market Shock

Aden 0:00

Median house price at first budget's houses in 2021 was about 840,000. Fast forward to the middle of this year and it's about 1.35 million.

SPEAKER_03 0:09

And then post-budget, I'd probably say it's like 75% owner occupiers and climbing to 25% of the only investors that I see at the moment are grounded.

SPEAKER_02 0:18

The current population growth rate for birth is 2.85. What this policy does, I suspect without unintended consequences, is significantly increased the cost of building a new home.

Aden 0:34

Read my next segment. It's been a pretty topsy-turvy period in Perth Prophet. And like you said, things are changing. What do you think the next 12 months looks like? Welcome to another episode of the Purposeful Investor Podcast. We're a podcast for successful families who want to make smart decisions with their money and avoid costly mistakes. We're here so that you and the people you care about are going to be okay no matter what. And we're also here to set you up to live a great life. Welcome back to another episode of the Purposeful Investor Podcast. Today I am joined in the studio by Capital Partners founder, David Andrew. David, welcome to the studio. Thanks, Aiden. And we've got a special guest joining us. We've got Rowan Powell, who is the director of Verve Buys Agency. Rowan, welcome to the podcast.

SPEAKER_03 1:19

Thanks for having me, Aiden. Always a pleasure.

Aden 1:21

So we are going to be talking about something very topical today. We're going to be talking about the Perth property market. You would have to be living under a rock to have not seen all the articles, everything that's come out of the federal budget, and what that means for property. So we're going to take a little bit of a look into what that means and what Rowan you're seeing on the ground. But as our listeners know, we like to start the podcast with a little win

Wins Of The Week

Aden 1:41

of the week. So that's anything personal or professional that you can reflect back on. That was a little win. So Rowan, since you're the guest, what was your win?

SPEAKER_03 1:49

My little win was we're going to end a financial year on Friday. And it sometimes, as you guys know, in your business, it feels like there's always a lot going on, and when you can actually spend a bit of time within the team and recognize the good people you have within it. So that was my little win just to enjoy the company of the people I've probably spent a lot of time this year with. So that was a great win. It's so nice just to come up for air occasionally, isn't it? That 100%. And we went down to Tiger Fish and Codeso. So great recommendation there. Yeah. Very cool. Love it. What about you, Dave? What was your win?

SPEAKER_02 2:20

My little win is just just happening. And also how to do the business of financial planning. So they do a lot of the work behind the scenes. But right now we have three of our CAT team members, we call it the CAT. And West and Alex and Laura are getting promoted this week into the advice teams. And so they'll be working more directly with clients. And for anyone for someone like me who just has a passion for developing young people, it's just super cool to see people graduate and get on their pathway to becoming financial advisors so we can we can serve more Australian families.

Aden 3:12

Yeah, and I think the nice part as well is like all the team was so super excited for. Super hyped.

SPEAKER_02 3:17

They've been agitating at us or when are these people graduating? When are they coming out of that cat team? We want them in our team. And then there was a bit of a Barney, of course, because everyone wants them in their team.

Aden 3:28

Yeah, but it's probably 100%. I would change tact a little. I've got a personal win. Um a couple of mates, we've just been playing doubles tennis on the weekend on a Sunday AVO. None of us are any good, so that's what makes the game quite good because they always go to three sets because everyone's the same level of terrible. But it's just a good bit of exercise on the Sunday AVO, nice way to break up a weekend. Um it's been good fun. Lovely.

Why Perth Property Feels Different

Aden 3:53

So into the content. As as I alluded to, so within Australia, within Perth, property is always on the tip of everyone's tongue. And it seems like more so um now than ever because of how strong the market's been, some of the announcements from the federal budget. So we wanted to take a little bit of time today to go through what you're actually seeing on the ground, Rowan, and also what people need to be thinking about because it seems like it's a conversation every barbecue, every event you go to. It's an obsession. Yeah.

SPEAKER_03 4:21

You're telling me, imagine been working it for the last 10 years. So tell us what you actually do.

What A Buyer’s Agent Really Does

SPEAKER_03 4:26

So obviously being a buyer's agent and the director of it, it's it's essentially working on the buyer's side of the transaction. So that's for first home buyers all the way through to the prestige market. Um just giving the confidence and comfort for a lot of buyers to obviously making one of the biggest financial decisions of your life, especially when you're buying homes, just to give you the experience and knowledge firsthand. So obviously that's a part of like finding appropriate properties, obviously doing the appropriate due diligence depending on the price range. And the biggest one's probably understanding value and and what makes up a quality home in particular. And then just the other part where we spend a lot of time negotiating on the behalf of clients. Not how many people are comfortable with that to and fro, dealing with sales agents, so there is a lot of that. And obviously the the contractual sides. So it's a start to finish advisory.

SPEAKER_02 5:15

Yeah. I was saying to Aidan before, you know, when we were looking at downsizing, um there was just nothing that met our Because as you get older, and particularly for downsizers, you got quite tight criteria and we didn't want to move out of suburbs. And so we just got to the point where we said the only option we've got is to buy something, land value, and build. Because it's just so you would come into your own there, I imagine, where people have got very specific criteria that they're looking for, and you're able to really just narrow down the options.

SPEAKER_03 5:50

Aaron Powell Even further than that, so it's we do area specialization, so we have a buyer's agent for each, like it normally makes up like six to eight suburbs. Yeah, right. So I I specialise in the Western suburbs, so if there's something that is to come up and it is a little bit unique, you need to be all across it depending on price point. Obviously, the higher you go, the less properties there are. So it's all about that relationship and uncovering things that probably people aren't aware of, but also just providing relevant information that you're not across as well, which makes it easier to understand where value is within the market, as which I'll probably touch on in regards to the number of stock and little things like that where it has been so tightly held and it continued to be so that you need that little bit of advantage over the next buyer.

From 840k To 1.35m

Aden 6:32

So if we sort of give our listeners a bit of context, I've I've done a little bit of homework. So median house price in Perth, so just houses in 2021 was about 840,000. Fast forward to the middle of this year, and it's about 1.35 million. So what's like what have you seen over that journey? Because I imagine it's been a pretty steep curve the last couple of years where everyone's clawing to find it. What's it actually been like?

SPEAKER_03 6:54

On the ground, so obviously with my clients come to me, so probably you touched on 2021 to probably late last year, probably early start of this year, it was more about how quickly can I get in the market, just because there was there's so many, as you guys we've been across, so many headlines about how much the market's moving, how how things are going. And then the tail off of that, probably the last, I'd I'd only say last two, three months, it's probably been is this the best option that I can get instead of how quickly do I want to get in? It's going back to quality. So probably if you were markets of the 2018, 2020, probably just that prior to COVID, being like, well, do I think there's much room left in the market? Is this the best quality home I'm going to buy? And that's only come under from scrutiny of like uncertainty, to be honest. And obviously we've we've got more stock on the market. We've got 6,100, whereas in 2021, and I remember it, we had like under we hit under 3,000, which is a 3,500 or something. Which is a record or something. Um you go back historically to then and everyone was like, I just got to find something. If something does come up, I'm buying it. Whereas that mindset just completely shifted. Trevor Burrus, Jr.

SPEAKER_02 8:02

But something there's something that hasn't changed. And and the natural population replacement rate is about 1 percent. All right. So we're always going to need 1 percent more houses, more dwellings each year. But the current population growth rate for Perth is 2.85. So there's just a there's still a shortage. So to your question that you posed sort of rhetorically was a client thinking, oh, you one of your clients thinking, oh gee, has the property got much further to go? If our population growth rate stays at 2.85 percent, then the answer's got to be yes.

SPEAKER_03 8:42

Trevor Burrus, Jr.: It still goes back to it. And I 100% agree. And it it just goes it I actually think it's a little bit of a good thing there is a little bit of uncertainty because a lot of buyers are gravitating back to what is a quality home. Yeah, just pause, take a breath. Just pause, take a breath. Whereas like things were selling like seven to eight, seven to eight days on on market, whereas now it's like I wouldn't say blown out because it's 14 days of positive thing. But yeah, you have a bit of time to sit and think, and I've even seen that across the market where it's not you go through something on Saturday and then it sells Sunday morning or Saturday night. It's like, okay, we're we've got to the 20th of July, you've got 13 days, 15 days, you've got time to do due diligence, you have time to think in it, sit in it, okay, is this the right thing for me? And that's only a positive thing for buyers, I find, in this market is because obviously it a good quality home, no matter what the market's doing, is always going to sell and always going to be advantageous. It's just the fact I feel like a lot of buyers got caught up in the noise for a lot of the time that the market was moving, and it is, and it is continuing to do so, but they're buying inferior properties where the market was kind of covering up the quality of it because it's like, yeah, everyone's making equity, everyone's got growth in this asset, where you're like, well, I remember when that property was in 2016 and it was on the market for 210 days, and that was a softer market. If you were to pick that a home and sell it later in time, are you going to have the same consequences? I believe so. And you go back to like functionality, location, school zones, all the investment stuff that you've you've you've spoken about, but everyone just kind of brushed aside because it was so hot and and so quick to move.

Population Growth And The Shortage

SPEAKER_02 10:17

That's the difference. It's good that some of the heat is coming out of it, I think, Rowan, because recently it's probably felt a little bit like 2006, 7, 8. And that was very much the last probably mining construction boom in Perth. And Perth's always had that reputation of being a bit boom bust, right? But then when the GFC hit and all of and it just coincided with all of those construct big construction projects like Wheatstone and Barrow Island and that sort of thing finishing, lots of tradespeople migrated further east, population growth rate went down, and we had that lost decade. So 2010 through 2019, property prices fell quite sharply and then did nothing. So I think it's we talk about hard landing, soft landing in in financial markets, but in property markets it's probably really good that the heat is starting to come out of it to give people a bit more breathing space to make smart decisions.

SPEAKER_03 11:22

Yeah, and and that's what we've just been lacking is just people making smart decisions, to be honest. And that's that's right across the board, doesn't matter what price range you are.

Offer Frenzies And Bridesmaid Suburbs

SPEAKER_03 11:31

Trevor Burrus, Jr.

SPEAKER_02 11:31

Well I heard a story one of my sons said the property across the road from him in Palmara, really nicely renovated place. They had 20 offers. 20 offers, like written offers. That's amazing.

SPEAKER_03 11:45

And you're starting to say that and so they're so you would have like your blue chip areas, for example. So Palmary, obviously, on the border of East Fairmount, all Big Ten through there. What's happening is you kind of call them the bridesmaid suburbs because there's no stock in that original suburb, people are pushed out, and therefore they've got the good budget, they have the income, so then they're pushing that house price or that median price in that suburb up because they can't get what they're trying to achieve, and they still go to quality. I think I know that Palmaron is a nicely renovated character home, which is unique for the area. So then you're getting people from outside of areas because there's such low stock push to that one, and then it causes a cascade effect in the outer fringes.

SPEAKER_02 12:22

Trevor Burrus, Jr.: So then people who can't no can no longer afford to who aspire people who might have been aspiring to North Perth can't get North Perth. So they say, okay, better look south. Let's look at Palmyra. That works for me. The people who aspire to Palmyra are now saying, okay, well, geez, I'd better start looking in Hilton or Hamilton Hill or Which are all great suburbs. They're really gentrifying and that's what's happening across the board.

SPEAKER_03 12:44

You're starting to see that. And unfortunate thing is because when that Palmar one I would have said was probably start of the year as well. That's right. So what what happens is the the the mindset of the buyer was okay, there's 20 offers, if something else comes in in Palmara, I've got to be more aggressive than those next 19. But then two weeks ago, for example, I've um a property in Claremont. If you picked it up and put it at the start of the year, I think it would have been probably a high four and a slightly compromised. And so I when I say slightly compromised, it was across the road from a school. Yeah. They were chasing mid to high fours. A buyer who'd been missing out for 12 to 24 months just lobbed in at 4.95. Next offer. Get out. Next offer was 4.4.

SPEAKER_04 13:24

Get out.

SPEAKER_03 13:25

So you're starting to see the difference and shift between a new buyer who is just starting to enter and going, you know what, I'm having a good think about this. They're probably upgrading from a Mosman Park to get into Claremont where their they've got their house is two to two point five, they've got a bit of equity, they probably bought it for one. So then the loan amount's not as high, they can get to that four and a half range. Whereas this person that's consistently missed out, they missed down one before it sold. No, I think it was this is obviously we'll we'll touch on it just before everything in the world went skew in the policy in Trump. There was a house that sold in Claremont as well, they're chasing high falls, sold for 5.3, and they were the underbidder. And there was, as you mentioned, there wasn't 20, but it's still seven. And that's a good price point.

SPEAKER_02 14:08

At that price point.

SPEAKER_03 14:08

At that price point. So then you start to go, okay, and that person's picked that up and gone, I need to get in for whatever reason, and then they've gone to go buy that, and the next offer, well, the the buyer pool is around the mid-fours. So that just shows you how that's probably a good indication of what the market is doing and and where people are seeing. And I see it across the board. You're seeing people that have probably been in the market for too long and have been burnt by the 20 offers in Palmara that they will missed out and they're like, I could have gone higher, I should have gone higher. Sometimes you don't need to. Obviously, if you're buying a home for 10, 20, 30 years within reason, it makes sense. But to the extent of if it's slightly. So if you talk about what the market's been doing and you go through those numbers and the stock on market as well, like obviously, like I said, you've got six thousand one hundred, but if you go to the top six suburbs, one of them's South Perth, where it's all apartments, because that that's the weakest asset class to get going. Baldivers, house and land packages, Alkamos, it's all the outer fringes where land there's a lot of open land and you talk about population growth and builds and stuff

Apartments As A New Stepping Stone

SPEAKER_03 15:21

like that. It's nowhere people want to live.

SPEAKER_02 15:22

Aaron Powell We've talked a bit on the podcast about what I think is a fundamental shift in biopsychology in Perth. Where um up until really quite recently, buying not what you and I would consider apartments, like new builds, like but they're the 1950s, 1960s, walk-up, sort of two-level, three-level, what we used to-I grew up calling flats. I actually like them because when you go into them, they're some of them are really roomy and they've got nine-foot ceilings and but they're sort of looked down upon because they tend to be clustered around Stirling Highway or Canning Highway or whatever. But we're seeing a shift with our clients' kids where they're now saying, well, if I want location, I have to trade something out. So I either have to trade out location and move further away to get the house that I want, or I've got to trade out the house that I want for an apartment, an older style apartment, in a location that's really desirable. We've sort of seen that anecdotally. Are you is that working for you?

SPEAKER_03 16:35

100%. And it it's it is that the old like Renvestor mentality where people are like, oh, I might buy something in the outer fringes, but then you you're cross-referencing that with what you're buying in the western suburbs and you are changing asset class. So depending on where they're coming from, exactly the same. And uh it's not the fact that the apartments per se are new ones because they're they're more that's a different kind of buyer pool. It's the older, probably a little bit more derelict type where you can add value. Yep. They're they're the ones. But yeah, 100% that that's what we're seeing across the board. Like that, probably they're that sub 700k apartments, that's probably where it is. And then from there, people are going, well, what can I get for that money? Is it buying a home and a little bit further out? But then these are the conversations they're having to have. It's like am I going to be 25, 30 minutes commute, or am I going to be a five to ten closer to family? Trevor Burrus, Jr.

SPEAKER_02 17:24

But if that psychology is shifted, it's going to take something really big in the market for that to reverse. Because kids have been buying one-bedroom apartments in Sydney in good locations for twenty-five years. So I suspect that's probably a real shift for us from a social and demographic point of view, that people are now saying, okay, that's my way in. Renovate, move, renovate, move, and you know, you just don't get to buy your dream home up front.

SPEAKER_03 17:54

Trevor Burrus, Jr.: If you look through the buyers that are buying at the moment that are using the equity, like they are coming from like your villas and Chewett Hill, Villas and YoCon, and then buying the family home, it is a stepping stone. Yeah. Where a lot of I think the the the conversations was around trying to like you you're seeing first-time buyers with spending two million or two and a half to get that first thing. Whereas I I think the the appropriate strategy is starting to see is they're building that up over time, getting in the good area, b basing that. And it's a set and forget mindset a lot of the time of what I'm seeing across the board. And because it location beats all. Is there always gonna be a buyer for that type of property when you had to sell it? Yeah, absolutely.

SPEAKER_02 18:53

But Rowan, something seems to have shifted.

Budget Fallout And Investors Vanishing

SPEAKER_02 18:55

Like second Tuesday in May, federal budget night, um Treasurer Chalmers makes a range of announcements in the budget papers that had been well signalled, and then a number of budget changes that had not been so well signalled. And he's been variously referred to as a liar and you know, all the rest of it. There's been quite a lot of vitriol towards the federal government.

SPEAKER_01 19:24

What are you seeing since the the the the last budget?

SPEAKER_03 19:30

Oh a lot, to be honest. Um probably pre-budget uh majority of the buyer pool was like 50% owner-occupier, 50% probably investor. They were buying those apartments, um, the the entry-level villas and on those types of properties because obviously you had even on my books, you'd probably I would still have 50-50 in some regard that are trying to buy aspirational as well. Like get the best location, figure out a build, buy in that that pocket.

SPEAKER_02 19:59

So they're trying to buy the land value with as little value attributed to the house as they possibly can because it's their next move.

SPEAKER_03 20:07

Yeah. So they're trying to go that location-based strategy. And then you had like still over-reached type of buyers trying to get in, make it obviously the yields were still pretty good. And then post-budget, I would probably say it's like 75% owner-occupiers and climbing to 25%. And the only investors that I see at the moment on the ground are developers.

SPEAKER_02 20:29

You're saying then, and I know this is anecdotal, this is just what you're observing, but you're saying that that prior to the budget it was 50% investors, 50% owner occupiers, and now it's 75%, 25%. So you can infer from that that 25% of all bidders for homes established at dwellings have essentially left the market.

SPEAKER_03 20:50

Yeah, 100%. Just for taxation purposes or their strategies have had to change significantly.

SPEAKER_02 20:56

So we're hearing we don't do auctions so much in Perth, but we're hearing um, you know, New South Wales and Victorian um auction clearance rates are at you know, uh really low levels. Um I imagine that's that impact. Whereas the the investors have just left completely and um you know the rest have got a bit of time to as you were mentioning before, to to just hold back and wait and see.

SPEAKER_03 21:24

Yeah, and and and it's gonna be depending on where that investors come from. So if they're eastern states and they're doing the other strategy where they're like, okay, I've made some money in Western Australia, I've made it in Perth. Now they're maybe if housing prices are starting to come off in Melbourne and Sydney, they own they might be doing the same philosophy as what people are trying to do here and then upgrade because maybe it's a little bit easier to distinguish maybe I can get into a better area. And that's so I'm starting to see that as well. But to your comments, yeah, like the even auctions, yeah. So like I could have there's a couple of auctions that happened in Perth, a couple Weeks post the budget. There was one in Wembley that bought it for 1925 in 2024, couldn't get a bit over 1.8 two weeks post. So that probably gives you an indication of the uncertainty in the market, because that would have been a land value asset and they would have bought that to build. And personally as well, I've had clients that have had to stop looking because they can't do that strategy, or that was a part of it. That the whole proposition was to go, we are upgrading from maybe a woodlands to a city beach to get into a better area, but I can't hold both with obviously with one that beans such a significant cash burn as well. Trevor Burrus, Jr.

SPEAKER_02 22:35

That's that's so interesting because if I just take that thread a little bit further.

Replacement Costs And Building Pain

SPEAKER_02 22:42

People who established homes who are saying, look, what's our next opportunity? We're going to buy that old clunker of a house down the road on a really good block. So we're going to pay a lot of money for the block and then we'll negative gear it for two years while we go through the process of designing our new home, finding a builder, et cetera, et cetera, et cetera. And the tenant will move out hopefully the day before we start demolition. What this policy does, I suspect, without uh unintended consequence is significantly increase the cost of building a new home.

SPEAKER_03 23:24

Uh extraordinary. It's it's there's a huge cost um replacement cost in Perth is an absolute premium right now. Wow. So a lot of my buyers um that I'm getting are upgrading. They have a renovation project. So I just transacted a mine in Cottisloy. It's a 20, 2018 architecturally designed home. That was around eight mil, but they were coming from a renovation project in Peppermint Grove for 7.8, which was going to cost them six mil. And they said, you know what, I think it's better if I trade sideways because, first of all, if I am to buy a land value, yes, it's a lot of cash burn. There's also if I am to sell my home to make this work, I know there's rent involved for you moving out, and then we'll probably touch on it as well, the vacancy rates, it's hard to get a rental. So all these fundamentals don't quite add up, whereas people are going, you know what, I'll willingly wait for that finished product. And I'll I'll if I have to pay for it, I will pay for it because I know that sometimes the timing makes sense. Or if it's location and something that needs a slight bit of renovations, it has the potential, they prefer that strategy than starting over and building again. That's what I'm saying.

SPEAKER_02 24:32

Trevor Burrus, Jr.: So our listeners will know from our budget episode that I was banging on about this the last budget being so anti-aspirational for younger people. Trevor Burrus, Jr. But it's actually hitting it's hitting the not just your generation and below, but the generation up as well, because it's actually going to be just so much more expensive to build that dream home that you had hoped to build.

SPEAKER_03 25:00

Trevor Burrus, Jr.: Well, it's even going to be the downsizes. Because they might have an older home who are asset-rich, cash poor, and then they're having to sell their home into a newer build, which then you're doing the cross-reference and you might have a really good land holding, and you're going into something that's a core of the size and you're paying the same price.

SPEAKER_02 25:15

Trevor Burrus, Jr.: Oh, look, our time. Our anecdotal experience is that and and this feeds into our advice is be very, very careful if you're downsizing to expect to change. Like the likelihood of you downsizing and buying the house you really want and getting change out of your initial sort of family home. We just don't see it, do we? I don't know. No.

SPEAKER_03 25:41

It's rare. Trevor Burrus, Jr. Which just references the premium for replacement cost, because you're you're paying for a build on a small lot of land versus and this is where like you go back to the buying fundamentals, like obviously doing finance economics and we've got value valuers in our team and stuff like that. You're always taught to buy the the worst house on the best street and the biggest lot of land. Whereas that's kind of it's an interesting metric.

SPEAKER_02 26:11

You're also at a stage of your life where you actually want what you want. Like you you're pretty sick of doing trade-offs all your life. So as you bring your kids up, you're making trade-offs every day. Right? You do we do this or do we do that? Do we upgrade the house or do we c take the kids on family holiday? So by the time you get to my age in your sixties and you're downsizing, you're gonna make sure you're getting what

Red Flags Buyers Should Not Ignore

SPEAKER_02 26:33

you really want.

Aden 26:33

I think I wouldn't mind touching on so a lot of what we say to clients is one of our main roles is to help them make smart financial decisions and help them avoid costly mistakes, which in essence is what you're doing for buyers. So what are you seeing at the moment, or what are some of the I guess red flags for people to look out for where they can avoid making mistakes when they're going to make this big decision about buying a home?

SPEAKER_03 26:55

There's it like there's the way they always look at it is like locations, number one. So obviously avoid main roads, little things like that, assess the noise element, especially if there are there is a lot of conversations about R codes changing. So you want to probably keep away from like thoroughfares or anything that's probably close proximity to already higher density zone that probably could even be expanded further. That's my first and foremost that I look at. The other things is just like floor plan functionality. Is it worth even doing an extension and a renovation because it's so the cost of to do so? And understanding like the ceiling of that suburb. So even if you are to buy that product and do a renovation on it, you might be overcapitalizing by the time you finish because replacement cost is so high. Orientation, like things that people buyers completely forgot about for a period of time. It's like, what do you like about living in your home? And everyone always says natural light, and I know it's a it's a weird thing to talk about in some respects. It's leaving. But is it but people for forego that just because they were like, okay, I want to get into this suburb and makes sense and I'll pay this premium because there's one property every three, six months. Whereas there's always more properties, you've just got to ask the right questions in some regard. But you don't oversay that because if you're spending 10, 20, 30 years, you you want to be somewhere you love and it it's it's a it's it's a thought where every time you're home, you're like, what is wrong with my home? What could what are the risks associated? What could go wrong? And that therefore you're not even going to enjoy where you are. And so if you go back to location, orientation, functionality, all the things that everyone was so good at in probably 2018, 2019, because they had more time, there was more stock, you're more selective, you can go through more properties. Whereas because you're going through one every six months, you can't create that feedback loop of like what do I like, what don't I like, why did that one sell, why is that one so much more than this one?

unknown 28:39

Yeah.

SPEAKER_03 28:40

Because you you get caught up by not seeing anything, you you become that panicked buyer and you go, I've just got to get something.

SPEAKER_02 28:46

So if what you suggested earlier is true and there are 25% less bidders in market that the investors are not there, what's happening with prices, do you think? Is it too early to tell? Have they like you're saying there are there are fewer people turning up for home open. There's less competition. But are prices moving?

SPEAKER_03 29:07

Prices are still where they were. I there I would say there's less number of people through a home, but still the same amount of genuine interest. So you've you've kind of just created a more efficient it's become more efficient to identify the best buyer in the pool, I would say. You're still getting three or four offers on a property. You're not getting your 20, but you're getting three to four in a good price range as well. So it it prices are still relative. Um if it's a good quality home, there's still competition, it's still pushing it up. But things that are slightly compromised, I'm saying that it's probably probably the prices of the back end of last year or that mid-year, where it's kind of leveled out in some respect because buyers become a bit more astute and they have more time. They're like, well, I'm not making that sacrifice, it might need too much work, or long term, this isn't going to work

What’s Moving Across Price Brackets

SPEAKER_03 29:56

for us.

Aden 29:56

What about so you've got teams that work in different pockets of the market and specialists? So you're seeing different things in different areas, say the top end versus the entry points, what's like what's changed in that perspective?

SPEAKER_03 30:06

Complete like polar opposites. So I I do the prestige market, so the top end. I'm seeing more people upgrade their home and and just just get on with it. And then that's I don't know where that advice is probably coming from. It's more okay, if I've got good equity, I've got the foundations, if I might not have the best quality home, but I'm going to get the absolute premium I can. A couple of weekends ago, 45 mil of properties sold in cottysol in one weekend. And that was if you break it it's only about four houses.

SPEAKER_02 30:32

Well it was four houses. Yeah.

SPEAKER_03 30:33

And if you break it down, so like two of them were ocean views and two of them were large land holdings. Yeah. And with good homes. Whereas everything else through that market didn't sell. So like they're pinpointing, okay, what is quality, what's not. And then you go further, you go across the board and even like the three to four, a little bit slower because of like obviously income is that changed, it talks of interest rates. That one slowed a bit instead of having five offers, you probably got two to three good offers. Two to like that, two to three. Anything like 1.5 to 3, that's where the general buyer normally is, like that family upgrader. Depending on what suburb they're buying in, some of the suburbs have reached a ceiling where you're paying 1.8 for like a land value asset in Mount Hawthorne, and then they're like, well, the highest sale in Mount Hawthorne, yeah, it was like three and a half, but that was on a double block and architectural design. Doesn't leave me much runway. So that th that property is starting to stick, I find, in those pockets. And then the the like probably the sub 1 mil, you could probably even break it up into like sub one mil to 700k, and then sub-700k. The sub 700k is just so much uncertainty because the first home buyers, the 5% as you've touched on as well. As soon as there's they aren't they don't have experience to rely upon. So they are the first ones hit in some regard. And the pricing, that they're not as comfortable lobbying up a price in order to secure the property. And then the 700 to a mil, like you you're still seeing that same effect. There's just no confidence in their in their decision making. Trevor Burrus, Jr.

SPEAKER_02 32:04

With the 5% deposit scheme, so our listeners may not know, but I suspect it's been pretty well aired in the in the media. There's a scheme that enables you to buy a house for a 5% deposit, and then the government effectively guarantees the loan, which is a pretty significant distortion of the lending market. Um my guess would be that given what you've said throughout the podcast so far, that prices have been so strong. I imagine in that sort of 700 to a million mark, there would actually be people who are now in negative equity.

SPEAKER_03 32:42

Yeah, if they're in the outer fringes, I would imagine, in areas that are probably propped up by a lot by investor demand to because they were they had the strategy of being in and out. So they probably only held them for three, four years and they've propped up the suburb to look like it's more of a family-friendly, but then they're because they've all exited for whatever reasons to keep to get their cash out, in some respect some respect, it it's propped the suburb medium house price up. And then they've had to buy in at that, but then the demand's still not there anymore because it's a compromise location or it's not where people want to live. So therefore, you are you will start to see those those suburbs come off because the demand won't be there. Trevor Burrus, Jr.

SPEAKER_02 33:20

Other than perhaps for new brand new dwellings, so brand new apartments, brand new land subdivision, home house and home because they're still eligible for the negative gearing benefit. When we talk about aspiration, a lot of people see this as an opportunity. Buy your first home, build up your equity, use some of that equity as a deposit to buy a rental property, then buy another rental property. And that's not going to be possible anymore. So what do you think the strategy is going to be?

New Strategies Without Easy Investing

SPEAKER_02 33:51

Will people just say, okay, well, I'm just going to keep uh uh renovating and upgrading my primary residence? Because that's tax-free, right? You can you can sell a house for $25 million in Point Piper in Sydney and it's a tax-free capital gain. So, you know, what what what do you see happening there?

SPEAKER_03 34:08

I think that's I think it's gonna be everyone trying to upgrade or move and uh obviously their primary place a lot more. Um I think we'll probably start to see a little bit probably not unique strategies. I think it's gonna be very simplistic, but I I think the people are gonna be more open to moving their their family home for whatever reason. Um and the only other people probably that will be the movers and shakers will be the developers that are doing that might buy these subdivisions to do the two new townhouses. So there is a little bit of CGT discount and you can appeal it, like apply it to other people. But a a lot of the home buyers aren't going to buy that product. So it it's going to be an interesting landscape to watch. I I I'm already seeing it, people upgrading or moving their home to get a better location if they think, oh, you know what, I think the market's maybe covered up. I might have made a mistake in 2020, 2021. It's time to let go. It's time to go somewhere better and not have that risk associated long term, even if I have to borrow an extra little bit, or if it's it makes sense for them because they've already seen that a good product, no matter what the market's doing, is a strong product. So that's what I'm starting to say.

SPEAKER_02 35:17

So interesting. We often chat about the fact that advising clients is actually far more psychology than it is finance. And I'm hearing exactly the same thing for you. Yeah, 100%. As it is ours.

SPEAKER_03 35:37

Yeah, and and you've got to understand like why they're doing this. So like as you guys do with your advice, it's like why do you want to undertake this decision? What what's what's the thought behind it? Is it changing schools? Is it and then you you're getting more more time equates to more questions as well and more decisions that they're trying to figure out. Um whereas I think before, when the market was so aggressive, they didn't even always have time to think about what are the replicates, like what are the consequences, what's the positives, what's the cons? They were just doing it because they're like, oh, I just have to get in. Whereas now time has come back in. And even with my clients, you start to hear like, oh, maybe the wife doesn't want to go to work anymore, or they're thinking about retirement earlier. The little things that are starting to change that they're like, okay, what's the best decision for us? Have our kids more central, do we want to be closer to them? Is this the time to make that move? Whereas before, because it was moving so quickly, they they were probably weren't

Subject To Sale Offers And Bridging

SPEAKER_03 36:32

comfortable. And then you have the introduction of a bit more sub-sale offers, which I've which I'll touch on. That that's starting to come into the forefront as well.

SPEAKER_02 36:40

It's interesting, because that's really not been there at all. It's been if you haven't got a cash offer, you're and is are we are we thinking of there's a premium or subject to sale? Still have to pay a premium, but sometimes So the cash buyer is g still going to win every day of the week? Yeah.

SPEAKER_03 36:56

How much at two mil, I would say the subside needs to be two two or two two five, almost two hundred grand, I would say. So ten percent more. Subsale. Yeah. Wow. But sometimes it's the only way to unlock that downsize or that next product for a lot of for a lot of sellers and buyers. So that would be the interesting landscape for the next six to twelve months to see what it does numbers-wise on listings as well. Um I I probably think they will go up because subsales increase the number of listings, but they don't go under offer. So it'd be interesting. Um, and I'm starting to see that in the Western suburbs are taking that on, depending on what type of property it is, because it could be slightly compromised and someone's trying to get out of something that's worth more compromised than that to get into that. So it it's a really interesting landscape which I'll probably keep a little bit of an eye on, because then you'll start to see different types of buyers enter the market. Ones that they probably felt they were stuck financially, they put all their money into their primary place, they might not have anything else to go, that they might have inherited a property if they don't have the cash flow to in order to get a loan. That's where I'll start. That's when it will start to become pretty interesting as well.

Aden 38:02

And even the impact, like speaking to a few mortgage brokers around like bridging finance for that exact reason. So they've got that in place with the subject to sale off. I'm um definitely seeing a bit more of that.

SPEAKER_03 38:12

Yeah, and it I think it would just be a lot more unique ways to kind of support the primary place. I think that's that's the the difference. Whereas as I touched on earlier, when we said 50-50 investors owner aux, I don't see why that number won't continue to keep climbing past 75, to be honest, because the metrics or the like for an investor, it it just doesn't quite make sense for them to enter. Um, and the types of products that are on the market versus the ones that people actually want to buy don't match up.

Parents Helping Kids Buy Better

Aden 38:42

One thing I do want to quickly touch on before we sort of close it out. Um when we had you on the podcast a couple of years ago, one of the conversation points we had was like first-time buyers, parents or grandparents helping them into the property market, different ways you were seeing it. Has has anything changed in up front or what are you seeing in that?

SPEAKER_03 38:58

I think it's even like more so. I think like I I think when we spoke was like the the the starting point of people being like, okay, maybe this is the only way for my my immediate family to enter the market. I'm seeing it so often. Yeah. Um more so than ever.

SPEAKER_02 39:11

What what in particular?

SPEAKER_03 39:13

Uh probably like price range in particular is probably a one to two. Like people that are moving from that villa who've got two kids that probably need the guarantee or going to or like a 300k top-up, 250, just to get them over the line to get a better quality home. Recently had one for that with a client that went through my team that bought in Bayswater, their finance was one one. There was a house for one three five, that was a four by two, and they've been looking at two by ones, three by ones. And the parents helped out to get them there because they're like, this is a set and forget. To pay that extra little bit of money in the long term if you're here for 20 years instead of doing that extension. That made more sense. Yeah. And you're seeing that across the board. Even if it's just to get the slightly better quality property, I'm saying that.

SPEAKER_02 39:56

Yeah. We did a great episode with Mike Killener. Um and and you know, what was interesting about that was for listeners, was it's not uh you don't have to dig into your pocket as a parent to help your kids into the property market necessarily. If you can, you might choose to, that that's great. But the idea of the guarantee where you're using the equity in your property to help uh your adult child secure a property. The only time you wouldn't do that is if you felt your adult child was a bit of a black sheep and there will there might be some doubt about whether they meet their repayments or not. But if you're confident your your children are going to meet their repayments, then that it's a great strategy.

SPEAKER_03 40:39

Yep. And they've got full oversight as well, because a lot of the time the the most buyers I see that go wrong don't rely on experience or knowledge from previous like um parents or anything like that. So it's I actually think it's a it's a massive positive because you've got someone in your corner that's educating you and that's more experienced than you helping you out. And that I only see it being more like I actually think it'll probably more so if we start to see upgrades and and people that have equity in their home that are willing to do something with it. Because a lot of the time people might have bought these places in the parents might own the home since 1990, bought it for 86, and it's what could be worth 2.3. And they're not willing to downsize, they don't need to for a period of time. So what what they're gonna do is the next best thing is help their immediate family.

The Next 12 Months In Perth

Aden 41:24

Aaron Powell So if you just to close out, if we get you to get your crystal ball out, it's been a pretty topsy-turvy period in Perth property, and like you said, things are changing. What do you think the next 12 months looks like and what conversations will you be having with people do you think?

SPEAKER_03 41:37

I think the more conversations they'll be having is um I think it'd be more of like home management in regards to do they think is it the best possible home that they have? What are the positives and negatives? And the potential for is it time to move, is it time to upgrade and downsides if obviously subsales come on. I think there'll be I think the stock levels will increase, but I don't think the quality stock levels will increase if that makes sense. I think it'll be a lot of the outer fringes, the um the apartments where no one really wants high strata fees, things like that, or investors trying to cash out they might have bought previous years. I think we'll start to see that. And I I think the days on market will probably go up a little bit, but not too much. And I I think it's still a seller's market, but there's a there's a bit of reprieve for buyers, which is a positive sign. Um that's what I probably see in the next 12 months. It's I wouldn't say it's it's a equilibrium just yet. I think we're significant away from that, as Dave's touched on with the population growth and what we're rebuilding. I don't think it's going to get there for some time. Um and I think we're always gonna have a shortage of good quality stock. Um that's my crystal ball for the next 12 months.

Aden 42:45

Love it. Well, we might have to get you on in 12 months' time and revisit it and see where we're at. Yeah. Um Rowan, thanks so much for joining us. As our listeners know, we love it when you send through questions, topics, anything that you'd like us to explore in further detail. Um, if you do, send them to myself or David's email or the podcast email, which is ask at capitalhyphenpartners.com.au. Rowan, Dave, thanks for joining me.

SPEAKER_03 43:06

Been a pleasure. As always, thanks for having me.

Aden 43:09

Thank you for listening to another episode of the Purposeful Investor Podcast. Make sure that you share it with a friend, someone in your network who you think would benefit from having a listen. Both David Andrew and myself, Aidan Wilkins, are authorised representatives of Capital Partners Consulting Proprietary Limited, and we operate under the Australian Financial Services Licence 227 148.