It’s a seller’s market

In the context of the Australian residential real estate market and specifically, the Perth market I was asked by an esteemed national accounting firm today for my buy, sell or hold opinion.

Following the discussion, I followed up with this email,

“In today’s meeting I gave you that current valuation case for residential property being expensive or at least fully valued, in citing a net earnings yield of 2% equating to a Price/Earnings Ratio of 50.

My other negative points included fixed or perhaps growing expenses (including rising interest rates).

Poignantly, should interest rates double, your client may still be able to service the debt, but others around him (especially those buyers of property in the past 2 years) may feel debt payment strain. This leads to a rise in listings and lower prices due to increase stock. Water does find its natural level.

On the other side of the financial statement, residential properties don’t have same ability to increase revenue in the manner or potentially the velocity in which a corporation can.

Invariably, higher residential prices have heralded new dwelling development which also increases stock.

But most subjectively, when you find clamouring buyers driven by scarcity and fuelled with low interest rates, it is identifiably a “Seller’s market” and not the other way around.

It may not be a time to ‘dump’ all holdings as it depends of your cost basis, the utility the property provides or the associated debt and holding costs but there are times to trim and sell assets when they are fully priced.

When it comes to residential real estate, a seller should greet moments when liquidity and buying interest is abound and forgo perfect timing, as the real estate market doesn’t afford you ’natural’ price discovery and quick settlement periods, unlike the stock market.

Catching the ‘fat’ part of the trade is perfect.
Preserving capital is paramount.”

August 24, 2021
by Rob Zdravevski


Western Australia – don’t become California

Coat of arms of Western Australia

Coat of arms of Western Australia

How do I put this…..Western Australia, your hubris will kill you.

Not only is government at fault but business is as well.

West Australians seem to enjoy bragging how expensive things are in their state as if it is a badge of success. Their trade off is the nice weather, surf and beaches. Luckily, you can be broke and still be able to enjoy them.

Landlords in Karratha are charging extraordinary rent for ordinary homes in a town that is 1,500 km from Perth. In fact some small houses, cost over $5,000 per month to rent which is the same as renting a 2 bedroom apartment in Lower Manhattan or a 4 bedroom 150 sq. metre fully furnished condo in Singapore.

The cost of living in Western Australia remains much higher than in other parts of Australia, especially when it comes to food & fuel.

Beyond our state border, a recent Deutsche Bank survey has found that Australia, as a whole is one of the most expensive countries to live in.

Yes, I know that there are benefits to living in Australia, but the rising costs of the basic necessities is a concern. Don’t get me started on paying $10.50 for a pint of beer in a pub!

There shouldn’t be a “premium” to pay for almost everything, simply for living in Western Australia.

I’ll let you in, on a small secret, not everybody in W.A. earns $190,000 per year to operate an oil rig.

The risk that Western Australia has is that people can start to leave the state just as easily as they came here.

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