Episode transcript
Parag Dixit
Hi Julius, how are you?
Julius
I'm good, Parag. How are you?
Parag Dixit
Going very well, very well. How are things?
Julius
Things are good. Trying to be busy.
Parag Dixit
All right, that's awesome. Yeah,
Julius
yeah. So working with lot of investors about new strategies as well as working on few good. Nowadays we can see there are a lot of good off-market deals where you can actually make good amount of money.
Parag Dixit
It makes sense for a lot of people to get into and be able to buy properties and do stuff. And in fact, that is what we are here for. And you know, it's it's it's a market which is changing dramatically, and lots of new stuff is happening. And one of the big questions which people have been asking are about the Perth market. That is, Perth market still one of Australia's best property markets to invest in, or you know, investors you know are arriving after much of the easy growth is gone, and you know it's you're you you kind of at the end of it, or in the middle of it, or maybe at the peak of it. But that's the that's the question which every investor faces at all points of time. You know, it is all about finding where the opportunity is going to be.
Julius
Yeah,
Parag Dixit
and maybe the time is now come where you can say, okay, Perth Market maybe remains strong, but does it mean every suburb will remain strong, or does it mean that you know every property is a good property to invest? Maybe two years ago you could pick any and it will go well. Is it the same thing? You know, property has been good in Perth. Property has been strong, good rental, good population growth, good supply. You know, constrained supply, strong economy. But 27, not the same story. 27, we are all asking. We are all saying, why is Perth growing? That's not what we are here for. We are here for is opportunity still left?
Parag Dixit
If opportunity is not there, then what am I here for? Is it got room to run? Has it got future growth, or is it already been priced in? Is it genuinely affordable, or the affordability is gone? I think we're reaching a stage in Perth where suburb and property selection-that's becoming much, much more important than you know simply saying, "Let me go and invest in Perth or maybe WA or Perth, whatever we need to see. Because we we need to ensure that when we are investing now and in 2027, the markets are very different now after the budget and after all of these things. That what is what was there in the past may not be holding sense in the future, right? And that's the important bit when we're looking at Perth Market on what is going to happen here, how much it has it has moved, what has helped it move, and what is what was the reasons for this? And let's get a bit of a deep dive into it. Okay, so Julius, maybe I'll want to ask you something right now. What made Perth such a big investor market in all these 234, last years?
Julius
Yeah. So for every investors, the the biggest concern is affordability. Yeah. And second is if suppose if I have million dollar to invest, what I could buy in Sydney, Brisbane versus in Perth. In 2021, in million dollar probably, I would have bought around three properties or four properties in Perth with the higher yield. So it was was a concern in other states versus in Perth. It was highly affordable. That is number one. Yeah, yeah. Property were cheaper. They are better quality. Yeah. So you could buy a nice four bedroom, two bathroom house with around seven to 8% gross yield for around $400,000. That was the story. Then they are nice four-bedroom, two-bathroom, double-brick homes, so less maintenance, good tenant quality. There are a lot of people would like to diversify their portfolio. Also, where in portfolio you need a good property, good entry to the capital city, where you can expect a good capital growth with the great rental yields, and all those aspects were available in Perth. So, but now the question for 27 isn't whether the Perth was affordable. Actually, it's is Perth still affordable enough to provide the same investment advantage? Yeah, yeah. And did investor originally come to Perth because it was a great market.
Parag Dixit
Yeah, yeah, correct. Yeah, great market or you know good price or what was what was the reason why people came back to Perth at that point of time? That's always been important because Perth has Perth has been very attractive and a good story of the last few years, last five years. I think a big part of the demand drivers for Perth was the population growth as well, which was happening here. You know, it was it's a good state, good nice place where suddenly when the migration boom and all those changes post COVID came into Perth and post COVID WA become became a state where people would say, okay, it's it's a good state, it's a good employment state. People having good incomes. People having everything. So okay, I let's let's move to Perth, and then more people move to Perth. Then there were more. They would go there. They would rent. They would buy. Obviously, there was a good market demand. But then it is important to really understand what kind of population came in there. Because that is what changed a lot of stuff, you know. When people came in, there were skilled workers as well. They were good families, working families. But then there were students as well. Then there were interstate migrants as well. Then overseas migrants and temporary migrants as well. Temporary workers as well. Then it was all about what do they want to do? Where do they want to stay? Because when I'm talking of WA as as a as a growing state, it's not growing in every suburb in at the same rate. You know, everyone is talking about WA's population growth. But as an investor, my real question is, where are those people actually living and working, and where are they renting? Because that is what is going to drive my future growth. If I don't know what is happening there, if I don't know people are going to stay here, or people are going to the north of Perth, or people are going to south of Perth, or people are staying in which pockets, or what pockets are attracting what kind of people? Are they transient people? Are they permanently living people? Are they going to become owner occupier? Are they going to become just people who come every six months and go away? Who are those? That question becomes important, and that question straight away links to WA economy.
Julius
Correct. So economy wise, when you see in WA, yes, there is the mining dependencies, but in last entire decade, they were diversified as well. So we could see a lot of employments are generated in defense sector, services sector, larger infrastructure projects like Metronite, larger projects like okay they are they are building big roads, hospitals. Recently, they are upgrading the entire freeway in south, where they'll be spending around $600 million new train stations, so there are a lot of infrastructure-related work is happening as well as on ground. They are like big level bases. Yeah. So there is a lot of spend towards the defense and other sectors as well. Yeah. Even though there is bit of risk in the mining where the commodity cycle might have some issues and all, but the
Parag Dixit
main question is how diversified the employment by supporting the suburb I'm buying in, because it's it's always on the suburb basis. So there will be suburbs where okay you could see they are highly dependent on a single employment or concentration of the single employment is extremely higher. But there are suburbs where there is a lot of owner occupied demand. Yeah, they their suburbs or the entire councils where okay there is lot of concentration of the diversified employment, and that's the question. So if you avoid few certain pockets, then there are the lot of good pockets where you can focus on. Absolutely right. In fact, that's that's how that's how pockets have grown. That's how suburbs have grown. That's how people have been there. That when those suburbs which are having a good mixed employment, people are getting attracted there. Suburbs which are heavily concentrated with specific kind of an employment, then the price growth has not been good. So some suburbs have grown 110% in the last five years. Some suburbs have grown 60% in the last five years. You can be happy with 60. 60 is not bad, right? 12% a year growth. You don't get it every day, but then you've lost out on somebody else, which has grown by 120 percent. As an investor, I would rather be in the 120 rather be in the 60. And that's how that's. It's important to understand how these drivers do because these drivers will also start impacting the vacancy rates. These drivers will impact the rental market as well. You know, you can always say, okay, Perth market it's well below the two and a half, 3% kind of a range with which real estate invest. The institute says, okay, that it calls us a balanced rental market. But is that good enough? You know, there are suburbs which are 1% less than 1% point 7% point 8% kind of a rental market because that creates a tight rental scenario. If there's a tight rental scenario, I'll have good competition between tenants. I'll have a good rental leases. I'll have good growth of rents which is coming in. As an investor, I get lesser risk. When I have lesser risk, I get much better benefits out there, and then I'm I'm happier because I have a safe and secure investment property. I have a safe and secure rent coming in, and I have a growing rent in there in that area as well. I may not have a blue chip property, but I may have a property which is very good, a four bedroom family house and a one bedroom apartment, same suburb. They will have all the very different kind of people now. Which kind of tenant do I want to appeal to? Which kind of tenant I feel that it makes sense for me becomes my whole point. Because as a as a as a rental market, as as both rental market, and if I start wanting look into the future, I would always ask myself three key questions: What is the vacancy rate in the suburb which I want to invest in. What is the vacancy rate for the type of property I want to invest in, and who is my tenant?
Parag Dixit
What kind of tenant am I getting? Because the kind of tenant is determining the tenant quality, and my tenant quality is important for me because Perth is still. I know it's still a. A good capital growth story, but it is also a very, very good and increasingly a hold story, lease and hold property kind of a story, and that's a developing one. And that is why it's important that we understand where we invest in, why we are investing in, and what were the important parameters which have made Perth so attractive, and I believe in the future as well. When we want to understand whether reels are going to be still attractive or not, we need to understand that bit. Correct?
Julius
That's right. It it certainly depends on pockets to pockets as well. There are suburbs where you had reels in between seven to 8% Now they are sitting at very close to four and a half to 5% But when you say 5% they are gross. Yeah, that means you have to take away your property management, council rates, your insurances, probably a strata or all the expenses. After expenses, it will be probably around 4.2% net. Yeah, so it purely depends on if I'm buying a property worth of, for an example, $700,000. If my rental there, there'll be pockets where you can find out around 750 a week as a gross versus you can find a $600 per week as well. It depends on the pricing of the property as well because as the pricing as the price is going up, literally if the rentals are catching up, that's fine. But now the story is basically there are a lot of suburbs where the property prices are about million dollar, your rent still at around $800. So it always depends on where you are buying in a Perth as well. Absolutely
Parag Dixit
right. So if someone is attracted towards that 5% yield, we need to understand whether this is a 5% net or gross. True, and that net and gross can keep on changing the story. And the kind of people who will always raise the question that we are past the boom, or we are not past the boom, are the ones who are on the right side of five or the wrong side of five. Correct, because if they are on the wrong side of five, they can always say, "Ah, no, no, there, there is this is this has become bad. You know, prices are high. You know, yields are compressed. You know, there's no affordability. You know, as an investor, I don't want to enter into it. But whereas if I'm on the other side, I can always say that there is so much of an opportunity which is sitting there. There is, you know, population growth which is coming in there. There's rental demand coming in there. There's economic strength coming in there. The shortages and all of that stuff is what I'll talk about. But the important one is: Have I selected my suburb correctly? Because it's a it's it's a very dangerous assumption that that if I am investing in a suburb which has performed well in the last three years, it will perform the best in the next three years as well. Because the story would have changed. The last three years story would have been buy anywhere story, and the next three years story would be what are we buying? Are Perth investors buying the future fundamentals today, or they're buying because they're just seeing what happened in the last three years, because they don't know whether they've come in into the early cycle or they've come in into the late cycle, and that's important to identify. If you've not identified that clearly, then you are already then you are always going to question. Oh, I am in a bad state, or I'm in a good state, or I'm you know I'm lucky. I may just have been lucky when I bought in a good suburb, but luck doesn't come every day of the week for you, right?
Julius
Yeah, that's correct. And then when you look at the supply side, right? Okay, Perth always had demand and supply gap, and it's a significant gap. But in 2027, we could see supply is catching up. Yeah, but not at the point where okay, you will be either a neutral supply or oversupply. That supply gap is always there, because your population is growing. You need more houses. When you look at the construction cost is extremely higher. When you compare between the established homes versus the new homes which are building, the gap is significantly higher. Yes, your population growth is above state average, so it's a lot of people coming in.
Julius
When you look at the supply which is coming up, it's not catching up with the population. Plus, the new properties are expensive, so new stocks eventually entering into the market, which is good because then your new properties are more expensive. Established properties are at the place where okay, there's still a gap which has to be filled, but there are certain assumption as well. Like when you are buying a property in a Perth, right? You need actually understanding which council you get into.
Parag Dixit
Yeah, yeah.
Julius
So because there are few suburbs where we could see they could have a more supply in next five to seven years because there are lot of greenfields area as well, where if council puts a lot of money towards the development of that those side of the greenfields areas, then probably yes, you could see a potentially higher supply in next 10 years. So there are suburbs where, and they're still affordable suburb where you will be in inner CBD circle of the CBD where you can have a bigger lot. There is no supply, and and there is highest demand. So it's always necessary to find out where in Perth you are buying now? There was a time when you buy a property of $400,000, it became 800 now. Yeah. If you are entering in between 750 to 850 k, then yes, you need to understand the supply side as well.
Parag Dixit
Yeah, 100% You need to understand the supply side as well because not every Perth suburb is going to remain the same. Yes. When we are looking at 27, or when we are looking at later part of 26 to buy into suburb, we need to understand that its its birth is not a single postcode. Correct. There's so many postcodes out there. We need to see all these factors. You need to you need to see employment. You know where where do people work there? Are they are they finding what kind of diversified employment is there? Transport? Can you reach the employment centers? Can you reach the CBD? Can you reach the place where your point of work is? Is it easy to go there, or you have to go around the world to reach there? What kind of schools are there? Your kids want to go to a good school. Are your schools good, or are your schools as the way you would want? What kind of you know stuff is around me? Shopping, you know, healthcare, you know, hospitals, and all of that stuff. Land is it like you rightly said? Is if there is heaps of land which is which is going to keep on coming, then that suburb can become a Melbourne story, and so it just keeps on coming, and then the price is not going to go anywhere, or the rentals are not going to go anywhere. How good is the tenant market. Are my tenant quality in that area good, or it's not a good market there? How much of an owner-occupied appeal in that area? If it is having a good appeal in that area, then I've got a winner in my hand because emotions come in as soon as owner-occupiers come in, and that gives you a good resale market. Who's going to buy in the next seven to 10 years? Owner-occupier. If there's going to be investor after investor after investor, it's going to cap out very quickly. If owner occupiers start coming into that suburb, you are in for a good winner. We are. We need to be very clear that whether I would want to buy an average property in a Perth's best suburb, or a wonderful property in a not so good a suburb, which doesn't have great fundamentals, I I I think I it's a very clear answer out there, right? Yeah,
Julius
yeah, that's correct. So when you that's why when you look for Perth, who is currently who should look for a Perth? Yeah. So basically, like first time investor. So when I'm investing for first time,
Parag Dixit
yeah,
Julius
my main requirements are like okay, I have to get into a property where my equity extraction time should be as soon as possible. My first property should have a good capital growth, so in next one to two years, I'll withdraw that money and go with the second one. Still available because it's a capital city. Your entry is still in between seven and $800,000. When you buy a property at this interest rate. If I'm buying something in capital city with around 5% gross yield, and now rentals are surging, so basically could be around 5.5% rental yield. For the first time investor, it's still a gold mine.
Parag Dixit
Still a gold mine.
Julius
Then interested investors like okay, for an example, if I'm in Sydney, I bought enough properties here. If I'm sitting in Brisbane, I have three or four properties in Prince Spain. I have to when I have to diversify. It's another option because you are getting a fantastic deal with the good rental income and a great capital growth with the great fundamentals. Portfolio builder for portfolio builder. Sometimes you need to understand okay, because Perth is in a boom from last around four to five years. So basically, a lot of investment bought around four or five properties in Perth. For them, probably yes. Sometimes you might have to buy there because sometimes you have to diversify as well. So for them, it's it's bit tricky. For the cash flow investors, yes. I have a portfolio in Sydney and Brisbane, and it's highly negative. If I'm I'm planning to buy more properties, then Perth is another option. So if you are a growth focus investor, or if you are a first-time investor, or if you need a cash flow, they are fantastic opportunities. So basically, if I have a $700,000 to invest in 2027,
Parag Dixit
yeah,
Julius
what would make you put money into Perth rather than Brisbane, Adelaide, or another Australian market? That should be the question.
Parag Dixit
That should be the question, and it's a very important question that we need to ask because now the way Perth has moved in, and now the way the state is moving in, it's moving into be into a more selective territory. Correct. Not moving into a democratic territory. It's not you go and buy anywhere and everywhere. Exactly. And that is why these questions have started coming in. Will Perth remain the best property market to invest in 2027? And most investors are watching it. Whenever we see, whenever we put out some questions, whenever we have people coming back to us, clients coming back to us, and wanting to talk about Perth, definitely comes in as one of the key property markets to watch. They will always ask questions about it. Should I? Should I not? Has it run up the course? Has it doesn't run? Has it not run up the course? Whether I should go there, whether I should not go there, it. But whatever happens, it's it's very clear that when we talk about all of these factors, it's very clear that not every Perth property is a good purchase property. Not every Perth property is the is a property worth investing in. There has been a significant momentum which has already happened in that market, and it in 2027, the market is going to still move. It's going to still move very well. It there is shortage of supply. There is so much of demand. There's so much of pent in demand. The renters are still not there, and properties are not going up the ground magically. That they just still have that lag, but people have to. Be more selective. They cannot be just, you know, buy something which I want to buy. You know, you don't. You can't go and say whether I want to buy in Perth or not. You have to go and say which suburb should I go and buy in Perth. What is my investment strategy out there in Perth? And that's going to be the most critical one in 2027, right?
Julius
Exactly. In 2027, for an example, if I'm starting in between 700 to $800,000, if I would like to get into a capital city where in next one year down the line I can withdraw equity and go with the next one, Perth is option.
Parag Dixit
Absolutely correct.
Julius
Yeah. So there are few pockets in Perth, especially towards the inner CBD circle, where you can actually hold a good lot sizes with around 5% yield in between 700 to 750 $1,000, and where the zoning is changing, this is one of the option. Towards down south, lot of employment opportunities. Economy is diversifying. You are very close to water, so there are great opportunities within the port.
Parag Dixit
Great opportunities within the fourth, and you're so right. And I think it's it's a good way to talk about, and it's a good understanding which everyone should happen that it's not about it's not about birth growing or not. It's about the suburb, the the property, the rent, the price, the long term strategy. All of these things have to stack up for a investor to make sense, and a lot of opportunities will come in there. Is for a good investor, for a keen investor, for a smart investor, this is the time where you can say buy a property which is at a six-month-old price or an eight-month-old price, and if you're lucky, maybe a one-year-old price. And if you get that, getting that in one of the capital cities at the price point of 600, 700, $800,000, $900,000, it's going to be a steal, but not every suburb.
Julius
Not every suburb, and not every property.
Parag Dixit
And not every property. That's correct. No, that's that's. Thank you so much, Julius. I think this is important. Perth is a critical market for everyone, and I think a lot of investors have gained good amount of wealth from there. Yes, and I definitely believe in the future as well. A lot of investors are still going to make and create a lot of wealth for themselves in that market, but it has to be watched out for. Thank you.
Julius
Thanks a lot.
