Damian Collins On Perth's Boom, Its Catch Up And What Comes Next

In this episode, we're talking with Damien Collins from Momentum Wealth and Westbridge Funds Management, and we're going to explore what advice a local Perth property specialist would give to an interstate investor.

We'll cover the danger zones in buying in an investor hotspot, the mistakes he sees the unwary are making, and where he sees opportunity in an increasingly crowded marketplace. Welcome to the elephant in the room.

This is the podcast where we love to talk about the big things in property that never usually get talked about. I'm Veronica Morgan, real estate agent, buyer's agent and buyer's agent mentor, co-host of Foxtel's Location, Location, Location Australia, author of Auction Ready and co-host of Your First Home Buyer Guide.

And I'm Chris Bates, mortgage broker, recently ranked number five in Australia out of over 18,000 brokers in the annual MPA Top 100 Mortgage Broker Awards. Before we get started, I need to let you know that nothing we say here can be taken as personal advice.

We always recommend you engage the services of an appropriate and experienced professional. Our guest today is Damien Collins. Damien is the founder and managing director of Perth-based residential property advisory, Momentum Wealth, and chairman of Australian property funds management company, Westbridge Funds Management.

He also has served as the president of the Real Estate Institute of WA, REWA, from 2018 to 2022, and as a director of the Real Estate Institute of Australia, and has been an active property investor himself for over 30 years,

Damien continues to apply his extensive experience to help fellow investors grow wealth through direct and syndicated property investments, which we might get a chance to talk about as well. Now, Damien recently became an author. His book is called Property Investing Roadmap, How to Build an Income from Property for Life.

And we've invited him to join us today to discuss property. The Perth market, you know, specifically, but I guess broadly as well, investing in property, but also through the lens, looking at Perth and what's happening there through the lens of an investment professional. So thanks for coming along today, Damien.

It's been a while. We've been trying to get this teed up for some months. So it's good to see you.

Good to be here, Veronica and Chris. Great to see you both.

Thanks for coming on again. I'm just looking here at our notes. We chatted back in October 2020. You know, we could go back and look over the last 10, 20 years on Hurt. But, I mean, the last four years has been pretty interesting, right?

I mean, what's your sort of take, you know, if we pick it up from there, right, late first year in COVID to now, what's happened and what's set for the next few years?

Yeah, it's been a pretty bullish time in the market. And I guess, Chris, for context, I was actually at a coffee with someone that earlier today was chatting about my house that I bought in 2021. I bought it for less than the previous person bought it in 2008.

That gives you some context of where Perth went. tends to go in pretty strong cycles. We had 2003 to 2008, it went crazy. Then we had 2008 to 2020, basically it went nowhere or backwards.

And certainly since COVID, we've seen very strong population growth and the housing shortage, the building industry just can't keep up. So consequently, we've seen prices Rise last year was 20 odd percent.

Won't be that much next year, but it's been the strongest market in the country. But a lot of it's been catch up. We went from 2008 where we were nearly at Sydney prices and that was obviously unrealistic for a city half the size of Sydney.

But then we went to a point in 2020 where we were a long way cheaper than Adelaide, even Hobart. which again, doesn't make sense. We're somewhere in the pecking order in Perth, somewhere should be closer to Brisbane and obviously Sydney and Melbourne are larger cities and by nature will be more expensive.

So yeah, it's been a pretty strong ride. There's a little bit to go, but we're certainly getting much closer to fair value than where we were four years ago.

I mean, what does the locals feel about I mean, you've always got interstate investors manipulating the market, right? And causing little hotspots from where they're focusing and where interstate buyer stations are buying, for example.

But when the locals look at prices compared to their incomes and mortgage rate, are you finding there's a bit of an affordability restraint? Or do you feel like that a lot of locals think, you know what, we still think we've got a bit of capacity in the tank and we're keen to upgrade?

Yeah, we're starting to hit a bit of an affordability barrier, particularly in that first home buyer space. I talked to the builders and land developers, and they're saying now that the house and land package is around that $750,000 range. That's starting to push the affordability.

But wages in WA generally are pretty strong. They're the second highest in the country after the ACT. And a lot of that is mining dominated. And a lot of that money does come back into Perth because a good chunk of the workforce in the mining sector don't live in those regions.

They fly in, fly out. That's the FIFO. If you're in the Qantas Club, any day of the week between 5 a.m. and 7 a.m., you'd be the only person without a high-vis vest on often. So, uh, so, um, a lot of that money does come back to purse.

So yeah, it's certainly, um, the affordability barriers creeping in a little bit, but more so for the first time buyers, anyone who's had a property, um, is, uh, is finding upgrading easier. Um, wouldn't say easy, but easy, easier because they've got a

Rate cuts would help, but we're not likely to see them, I don't think, until well into 2025.

Has anything surprised you in this boom? I mean, obviously, investors do go where there's growth, right? And they do go for that short-term bias, a lot of investors. But I mean, besides that, is there any parts of Perth that have surprised you, have grown more strongly than you expected?

Or is it where you thought the growth would be over the last couple of years would be the strongest? Yeah.

We mentioned interstate buyers agents.

There's been a plethora of them come over and without really a lot of market local knowledge, and they've really pushed up prices, particularly around Armidale, Gosnells, some of those, which were once cheap suburbs, but they were cheap for a reason.

They were inland, 30-odd kilometres out, low socioeconomic areas. And so, yeah, we have seen, they've strongly outperformed.

We don't buy there to Momentum Wealth because they don't meet our investment criteria, but they have outperformed, driven largely by those interstate investors and the buyers agents who have been coming into town without a lot of local market knowledge. So that has surprised me a little bit.

Look, you know, would I have thought the market would be up 70, 80% or whatever it is up over the last four years? If you'd asked me four years ago, probably not. I think that's always, no, it's pretty hard to forecast that. We certainly...

I thought it was undervalued, but it's performed particularly strongly. But having said that, it still sits, depending on whose figures you use, we've only just passed Adelaide on the CoreLogic figures and we're still 100,000 away from Brisbane.

So even though it's performed strongly, it's come off a very, very low base where it was certainly well under what I would consider market value.

In boom markets, I mean, you usually get the ripple effects, right? People get pushed out of, you know, their dream suburb gets more expensive and they go to the bridesmaid suburb and then they miss out on that and they get the next bridesmaid suburb and et cetera.

And is that sort of growth sliding out further and further away from the city? Or as the interesting, you know, other angle with the COVID and working from home meant that it's gone up and down the coast a lot more.

Has there been some changes like that, that have, you know, broken, you know, Perth's growth away from sort of normal standards?

Well, I think we're seeing the outer suburbs, but particularly in lifestyle areas near the beach. Perth's a city that sprawls very much up and down the coast.

And so we've seen areas like Mandurah, Rockingham, which, of course, not everybody works in an office, not everybody works in the city, but nonetheless, a reasonable chunk of people do.

That ability to, if you're coming into work two days a week, that hour or hour 30 commute doesn't seem quite so bad anymore, particularly if you're the other five days a week when you're not coming into the office, including your weekend, you're sitting there and going out to walk to the beach and enjoy that lifestyle.

So I think it is fundamentally going to change those habits.

close those those suburbs uh nearer to the city in not two or three hours but you know those suburbs that are that hour hour 20 away where if you're only coming in for a limited time uh you do have that uh flexibility to live further away so but but it's got to have a lifestyle of been amenity to it like right near the beach and uh so yeah mandra has been a strong performer

Rockingham is also, even in the northern corridor of Perth, Ocean Reef and suburbs above that, they have performed particularly well. And no doubt that flexible working conditions has played an important role in that.

Is there any part of Perth that's not performing well or is it a situation a little bit like the entire country in 2021 where everything was going up?

Yeah, Veronica, pretty much everything's been going up. It's just been one of those markets where when there's so much demand and limited supply, it's just been incredible. Some of the pricing, you think that's hefty.

And then the next week, something similar will go for hefty plus another 20,000. So it has been a very, very strong market across the board. Yes, some have done

10 or 20% better than others, but pretty much everything is up at least 50% over the last four years and many are up 60, 70, 80%. So it has been pretty strong across the board.

So we all know that, you know, when the tide goes out, those who are swimming without cozies on will basically be exposed. And some of those markets won't, I imagine, sustain the prices that perhaps they're even at now. It all depends, I guess, on how long this boom goes for.

Where are the areas that I guess that you would exert caution? You mentioned those two suburbs, those names. Escape me because I'm not a Beth local.

Armidale, yeah.

Yeah, I'm saying Gosprey, was it?

Gosnells.

Gosnells, sorry. So there obviously are some areas that are experiencing growth just as a consequence, I guess, of the whole place being on fire.

Where are the risky areas, would you say? And what are some of the, I guess, the danger zones that you're observing? You talked about interstate buyers agents and we're quite well aware of, you know, I guess what's going on in some types of behaviour.

What are you seeing on the ground and where are you sort of alarmed?

Certainly any area that has got a high concentration of investors and newer investors as well.

Yes, we like to buy in areas that there's good concentration of homeowners because we all know when things change and things have to get sold, First thing that goes is the holiday home. So those we keep away from holiday resort areas.

And second thing is the investment property. The home is generally the last thing that people cut and run from. That's something they bite tooth and nail to keep and all the other assets get cut first.

So if you're buying into an area, and those areas I mentioned earlier, Gosnells and Armidale and Thornley even, we have seen quite a strong presence from investors. And we don't always get the ABS stats, unfortunately. They only come out every five or so years.

But anecdotally, we do know that that's been a very strong driver of that market. Now, if all those interstate investors decide to take their money off the table, and return back somewhere else, they're the ones that are going to suffer first.

And so I think that's an important thing for anybody investing to be looking at what's the, particularly if it's, look at the concentration of investors.

If it's very heavily investor dominated, then the investment money's flattier than home ownership and more likely to leave and more likely to be impacted by a downturn.

I think what I wanted to do actually was to go back the 12 years, you know, back to 2008 really, because you experienced a 12-year flat or declining period. So you've actually seen what really happens on the other side of a boom.

And I guess, you know, what would you say as someone who's been around for as long as you've been around, are the things that you're educating your clients about and even your team to be wary of? Because, you know, you've experienced it, how it can go really bad.

Yeah, absolutely. And that was off the back of the boom of all times that Perth had in 2003 to 2008, where prices almost tripled and nearly caught up to Sydney. And that was clearly the market was overpriced.

And consequently, it went from significantly overpriced in hindsight to then what became the 12-year downturn was too long. It should have been probably in hindsight six or seven years of

flat to moderate declining prices to get back to that fair value it went much longer and that's why we we went backwards to um to uh to what i considered to be significantly undervalued so look you've always got to be cautious is when the market's up uh so much as it has been not only in perth but across australia uh you've got to go into it uh eyes wide open

and knowing that the days of the easy money, they don't come around very often where you get those years of 10%, 20%, 25% growth. For every one of those, you're bound to get two or three of zero or perhaps even moderately going backwards or moderate positive growth.

So you've just got to be careful about that and conscious of that. So certainly I wouldn't be overpaying. That's one of the things that – has waned a little bit recently, but that FOMO effect of people who are in the market, they were trying to buy properties and got sick of missing out.

At one stage there was, particularly in housing, there was 60 people through home open, you get six, seven offers and first week and the median days to sell was eight days in Perth. 13 days has blown out massively. It's still not even two weeks though.

So I just certainly wouldn't be overpaying in this market. It's better off to walk and something else will come along. But

There is still a housing shortage. The population growth is still very strong. And we've got a building industry that was really cut significantly from that long downturn. We weren't building many houses. We dropped from 28,000 homes a year to 12,000 homes a year.

It's now bounced back to 17,000, but we can't get much more out of the market. And when we're growing at 93,000 a year, the math doesn't compute. That's too many people for the number of new houses we can supply. So that gives me confidence there.

It still grows, but yeah, the days of 20% are gone as far as I'm concerned. And that's not a bad thing. I think it's petering out and slowing down at the right time.

If it did another year or two at 20%, then at the end of that, we'd have another five or seven years of going nowhere, which we don't want to see.

Now, what's happening with rents? If you've got a lot of investors coming in, I would imagine that your proportion in some areas of investor to owner-occupier ratio will be changing. Is that having a downward pressure on rents?

I wouldn't say a downward pressure, but rents have stabilized. Although in our office, we manage a substantial number of properties. We're still generally seeing rents go up, but overall in the markets, it has stabilized. So the yields look at one stage, you can buy properties in Perth and gross 5% yield.

That's now gone, just not so much because the rents have gone back, but because the The values of the properties have gone up. So it's still a decent yield. You can get in the falls and that's okay on a national comparative basis.

But yeah, the vacancy rate has gone up from 0.6% to 1.4% according to Reva stats. But again, we're still seeing it's not a balanced market. We need more supply of housing. And again,

Yeah, the number of properties advertised for sale is, based again on REWA, stats is 5,000 or just over. We think a balanced market's around 12,000 to 13,000 for sale. And on the rental side, we're at 2,500. It should be around 6,000 for rent to be a balanced market.

So the stock has increased both for sale and for rent, but still undersupplied.

Damien, is there any of the sort of, you know, a long time in the downturn, right? And obviously that happens, people get burnt a lot, you know, they maybe upgrade and thought, God, we upgrade and had a lot more debt than we needed to.

And, you know, is any of that sort of negativity sort of still sticking around and stopping people being as confident around property? Or do you feel like there's the... You know, the people have, everyone sort of realized that maybe two or three years ago and said, hang on a sec.

Um, you know, the good times are back. We really need, do need to start to leverage up again and upgrade our home. Otherwise we're going to miss it.

Um, did you, did you find that the perceptions changed around, or is it still a little bit of people are very concerned and worried that maybe we're going to have another downside post this.

And I don't want to get myself in too much debt because, you know, there are some potential tougher times ahead. I mean, what's the mentality like? Yeah.

Yes, certainly when the market first started to turn and I remember when I was president of REWA at the time and I was talking to the media about the market and why we thought the market was likely to improve and you'd always see the comments on

on social media and, um, news organizations where your commentary was published and, uh, people had, uh, no confidence. So I know that he's talking rubbish, blah, blah. Um, and, uh, that's just a psychology of recency. People think just, they think what's happened, uh, is more, more likely it's in cognitive bias.

Um, what happened recently is more likely to happen again in the future. And, uh, so it took about, I reckon, Chris, about 18 months to, uh,

washed that out of the system and people started drinking from the Kool-Aid going, oh no, well this time it is actually going to go up and not necessarily go back.

So yeah, I guess when the taxi drivers or the Uber drivers these days start telling you about the property market, it's time to get nervous. I don't get too much of that, yes, but certainly the psychology has changed.

People are more optimistic, although I would say in the last three or four months, I think people have taken a bit of a step back.

And that's why I don't think we're going to see those, certainly not that 20% growth rate next year, something far less, just simply because I think people are going, yeah, it's no longer cheap. It's probably getting fairly, you know, fully valued or getting close to it.

So people aren't buying with their ears pinned back like they were this time 12 months ago.

Do you think families are making major compromises yet or do they think

you know, get what they want, I guess, you know, the budget sort of isn't too far off, uh, what they, their needs are, you know, I guess in Sydney and what we're seeing is that more and more people are making, uh, bigger and bigger compromises, right? Yeah.

They wanted the four bedroom house, the big backyard near the train station, but now it's a three bed townhouse, you know, walking distance away. You know what I mean? So are people having to make too many compromises to enter where they want to, or do you find that, um,

Yeah, it's still a bit of left in the tank.

The compromise historically in Perth has been more around where I'll live. I'll go further out. So if I want the 4x2 and a backyard, people might get priced out of a suburb. They'll move one, two, three or whatever number of suburbs away. They could still get that.

Uh, there hasn't been, it's first 2.3 million people. So it's not, uh, the size of Sydney or Melbourne. And, uh, and so the, the volume and, uh, of apartments and townhouses is a lot smaller than you see in those two large capital cities. And, uh,

And also the problem at the moment is construction costs are significantly higher due to mining sector demand and infrastructure spending. And so the cost to build new stock in that space is actually very, very high. So we're not seeing huge new stock of medium and high density product coming to the market.

The compromise has been more around the suburb I'll live in rather than the type of property. Although if you want to stay in the same suburb, then yeah, you're likely going to have to go to something.

What we possibly do sometimes see is that people having to choose older stock and go, well, I'll live in it and we'll renovate it whenever things get better, more so than moving to a townhouse or apartment. Yeah.

You've been around for a long time and I know how I experience the market in Sydney when it's slow versus when it's hot.

Were people taking advantage of sort of very slow conditions previously? in terms of upgrading their house when they needed more space and actually being more mobile in the property market. Were they more likely or less likely to do it when it was a buyer's market than they are now?

Are they finding that they're hamstrung now because it's much tougher, but also because there's less stock available? I guess what are the dynamics that are playing out in that sense?

Well, Veronica, the smart money should have been doing that, but most people aren't as smart as they'd like to think they are. Most people follow the herd. I think it was a couple of things.

The first issue was if you bought a house in Perth in, say, 2015 and 16, and you went to upgrade in 2019.

your house price might have been down 15%. Now your equity, if you're 80% borrower, well, your equity's wiped. So you didn't have that capacity to upgrade. And it was also a confidence thing as well.

So, no, look, I always find the times that most people are doing all those sort of things, upgrading and trading, is when the market's stronger. And I think it's just that I've created this wealth, I've got some equity, And that's the time to do something. So it's far more common and buoyant now.

Some people do see that it's not cheap to... My philosophy on this is I say to people, unless you're spending 50% more...

I think you'd be off to renovate rather than upgrade just simply because your transaction costs, your stamp duty and your agent's fees out, you're going to spend some money on furniture and whatnot and other things. You're at least 10% in. So if you can make...

do with the renovation, you know, certainly if you're 20, 30% more, you might want to, I'd suggest you probably want to stay and renovate if you can, just because those transaction costs of in and out of property are so high.

But yeah, we are seeing a lot of people, much more, many more people now upgrading and doing those, doing that than we did in the downturn for the reasons I mentioned.

Has it taken a while for that to start happening? You know, in terms of recent, in the recent years?

Yeah, it has. Again, going back to that example, even if you had 20% equity in your home and let's say you got back to break even, you're still going to lose 6% or 7% again on that transaction cost.

So it's generally when people start to get 30%, 35%, 40%, 50% equity in their property, they go, well, who cares? You know, I can torch the money on stamp duty and whatnot, but I don't, you know, they care less about those costs when the market's much more buoyant.

And so, yeah, it's been, the longer the cycle goes on, the more that people tend to start upgrading and doing all those, making those transactions. So even though the market sentiment is probably, slightly less buoyant now than it maybe was six months ago. The volume of stock has not flinched.

It's still selling every week at least a thousand properties in Perth. So the volumes are still happening, even though there's not five offers on a property, there's still one or two. And so the sentiment is still pretty strong, but not as strong as it was.

Damien, do you find the people who are doing well, because it's interesting, right? They have built some equity. They've got the houses. Prices are running on them. They could use that equity to upgrade their home or, you know what, or renovate. But they go, you know what, we're happy here.

The house is what we need. And the kids are in the schools. We can see ourselves. We love our neighbors, blah, blah, blah. So... Are you finding there's a bit of home bias and local investors coming into the market? Or are they a little bit saying, well, I've got my home here.

Maybe I want to diversify into other states. I mean, what's the sort of the general consensus? Is there a bit of a home bias? What are...

Yeah, I think like most investors around the country, you'll find that they've got a home bias and it's hard to convince people to go interstate for an investment property, particularly if it's out of sight and they can't see it.

And we certainly have seen more investor activity from locals in more recent times. The East Coast wave has certainly come off a lot. We haven't seen those... those groups coming over and buying up lots of properties all in three days. So a lot of that East Coast investment has waned.

The locals, again, were in that same difficult situation that they didn't have equity. Most people, as we know, when they're buying investment property, generally they don't save a deposit and costs. They generally use the equity in their home. So when we didn't have any property growth,

A lot of people just simply couldn't buy an investment property, but now we've seen those very strong rises. The local people have more equity and they've got the capability now to buy that investment property.

And we've even seen in our business that clients who got in three, four years ago have come back for a second and- and third, but yeah, look, we're definitely for diversification.

Um, we would certainly strongly encourage, uh, uh, people once, uh, you know, maybe the first investment prop in their hometown, but you've really, after that, you've got to be thinking about if you're going to build a, a multi-asset, uh, property portfolio, you've got to be thinking about, uh,

not only diversifying your asset base interstate if you're sticking with residential, but I'm a big advocate for commercial investment as well as you build that portfolio for generating a much stronger income, particularly if you want to retire income from property.

I'm on a personal mission to help more people make better property decisions and you can find out all about what I'm working on at veronicamorgan.com.au. There you will find resources for first home buyers, details about my buyer's agent mentoring program, information about my newest project, Preferental.

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You know, it's funny because I'd never really thought about that from the perspective of Perth homeowners in that sort of 12-year period are really at a disadvantage compared to most other capitals in Australia in terms of their ability to be able to invest. And it's pretty sad, actually, when you think about that.

But 72% of our property investors, residential property investors, are only investing in one property. So you can sort of understand the home bias for that one. But as you say, when you go beyond that,

So let's talk a little bit about commercial because we do, you know, we don't do a lot about commercial on this podcast actually.

And I seem to recall in our last conversation with you, you were talking about commercial as an opportunity for people to invest in Perth because at that time when we last spoke to you, the residential market was terrible. Yeah. And so that's something that you've been doing for a long time, isn't it?

Yeah. And how does that look now? Are you actually seeing some Eastern States money coming in on that side as well, or is that still a bit more preferred by, what do you call yourselves, Perthians? Perthians?

or something like that.

West Australians, I'd say. Look, our commercial division buys nationally. So we're just closing a deal at the moment for 30 mil in Queensland, in Brisbane. That's an industrial asset.

So look, I'm certainly a big fan of commercial and not just in Perth. As I said, we buy nationally. Mm-hmm. for the reasons that it is a much better income stream in retirement.

So if most of us are buying investment property to live on, we all know that in the residential space, particularly in Sydney, Melbourne, your gross yields might be in the threes. By the time you pay your All your rates taxes are now all extra land tax in Victoria.

Your net yields are certainly closer to, without debt, assuming you've got no debt, they're around that 2% or maybe even lower. In Perth, Adelaide, you can get a bit better. You might get into the three net. But the problem with that is the pool of assets you need.

If you don't want to sell off your assets, you just want to live off the income stream, needs to be very substantial. And then whereas commercial, this asset, for example, we just bought on a, yield of 7%. And that's net. So the tenant pays all the expenses, a net of all expenses.

So of course, most people don't have 30 mil. No. In fact, few people have 30 mil. So we put them in a particular fund, syndicated off so people can invest 100,000. and still get that 7% yield, but they're not having to put all their eggs in one basket.

So commercial property, I think, and that's what I covered in the book, is residential is a great place to start. I wouldn't advise anyone generally to start in commercial because it's got its own set of risks. Tenancy risk is one of the big ones. In a residential, we know if a tenant goes

You know, we drop the rent a bit or it might take us one to two months to get a tenant. Commercial can sit vacant if it's the wrong property for years. So it carries its own set of risks.

That's why it's an asset that you should be much more broadly diversified in terms of not just buying one or two big licks of commercial property. Go into opportunities and funds and things where you can get access to maybe... 10, 20, 30 properties that one's not likely to blow up on you.

But commercial definitely has its pros and cons.

But there has been a bit of a, you know, there's a new breed of buyer's agent popping up in the commercial space, which seem to be targeting that lower budget investor who previously might have bought residential. They might be only spending a million dollars or something like that.

Are you seeing much of that, you know, behaviour? What are your thoughts on that? Do you find that that's sort of higher risk than, say, those bigger deals or, I mean...

Yeah, unfortunately, most entry-level commercial properties are generally pretty junk, to be honest.

Often, you've got very small, insecure, financially tenants, and we'd like to get global companies and ASX-listed companies involved.

As tenants, particularly on the larger assets, you've certainly got that more security of tenure.

And the smaller assets around that million dollar range, it might be a kebab shop or it might be a, you know, and they're often not, and if they go out of business, it can sit there vacant for a long, long time.

And that's, I think that's, I would just advise anybody, if you're going to put a million dollars into one single asset, You really want to understand that asset, understand the tenant. I'm not sure people understand the risks involved when they go into those things.

They do certainly go, wow, I can get 5% or 6% or maybe 7% yield versus residential. But there's a risk premium for... The reason for that is that it does carry more risk, particularly around the tenancy. So...

So, yeah, I'd just be advising people, you know, there are opportunities in funds and it's not just obviously the funds that we do.

There's other fund managers out there who can get you into, for a million dollars, could get you in a broad pool of asset exposure without putting all your eggs in one basket. So do your homework. If you still think direct property is for you, that's great.

in commercial, go ahead and do it, but understand it does carry more risk and the vacancy risk, it can be a lot higher. I think the other thing to mention too is the lending criteria. So when the lending terms are often very much tied to the length of the lease.

So we all know in our residential investment properties, we go and buy an investment property and it's set and forget. I've certainly never been called for it in my... residential portfolio, which is pretty large. I've never been called for a revaluation of all my loans as separated and structured.

And I've never been asked to reprove my loan or get a call for a revaluation in commercial. I've got some direct assets from some time ago. That's a regular occurrence in our commercial funds. It's a regular occurrence. A lender says, well, let's every three or so years, let's do a revaluation.

And of course, if the asset goes down in value during that time, you could get asked to top up In residential, generally for mom and dad investors, as long as you pay your mortgage, it's very rare to be called to revalue that asset, particularly if you've got your debt structured correctly.

So all those things I think people don't necessarily understand before they go into commercial. I think if you are going to go into that space, you really need to do a lot of research and homework before because it's a different asset class to residential.

So, I mean, if I was a Sydney investor or a Melbourne investor or someone who's not from Perth and, you know, I'm looking to get a bit of Perth exposure.

Let's say I'm happy to note that there has been a bit of growth in short term, but what I want is an asset that's going to perform really well over the next 20, 30 years. You know, just a really strong growth asset. I'm not too concerned about rent, you know.

I'm okay with managing a negative cash flow, right? Where would you sort of, you know, not speaking streets and suburbs, but things like that, what would you sort of go for if you were looking at a pure resi sort of growth plate?

We mentioned it earlier about the ripple effect. And so we don't like to buy in the suburbs that everyone thinks is hot and popular, particularly if you've got a 10, 20-year time horizon, because that's already priced into the market.

So it doesn't mean they won't still perform quite well. But what we're looking for is those suburbs are going to outperform that extra one to maybe if you even get lucky 3% per annum. And that's where you get over a decade or 20 years.

That's where you get really solid capital growth and that really sets you up financially for life. So I'd be looking at those suburbs that have got some good fundamentals, but maybe the gentrification hasn't reached those areas yet. And we've seen it in Sydney and Melbourne. I mean, I'm from Melbourne originally.

You just go back and remember growing up as a kid, Port Melbourne was the epitome of the

The low socioeconomic slums, it was considered a horrible area. And look at Port Melbourne and South Melbourne now in Melbourne. They got gentrified in the 80s and 90s and onwards. And look how expensive they are now because they had some great fundamentals to them.

They were close to the city, near the waterfront, and that all changed. So, yeah, I'd be looking for those sort of – that's the sort of suburbs we look for in Perth where there's that opportunity, we think, that there'll be gentrification. It's got good fundamentals.

There's good reasons why people would want to live here. Perhaps they'll get priced out of some of those other nearby suburbs. And there's plenty of good op buying within, you know, take 10k of the city. Infrastructure is a big one that is a free kick for property investors.

If you get new train lines or new freeway access or something that's going to benefit you. But importantly, we also very much focus on where there's limited supply, we really do try and keep away from areas that have got a lot of land releases around them, simply historically over time.

When someone comes to me and says, oh, this suburb's great, the capital city's growing in population, that means a lot more people come into that capital city.

But when someone says, oh, that suburb's got strong population growth, well, I don't like that because that tells me that there's lots of land they're releasing to get all those people in there.

What are the Perth people value the most, right? So, you know, say Sydney might be aspect, right? Or, you know, flat block or, you know, a good street. Melbourne might be public schools, you know. Brisbane might be accessibility, you know, to the city, et cetera. What are the things in Perth where...

They put a real emphasis on when they're selecting one home versus another home as a home buyer. And one of the things they really are deal breakers for them. What are they just like really don't they like?

Well, Perth does have some very nice beaches. And so I have seen people make the choice to live 50 kilometers away because they want to be able to walk to the beach. So the proximity of the beach, even if they don't go every day, all they go... Yeah, it's a shorter drive.

Even sometimes they'll be three kilometers away. Yeah, it's very much a city that hugs the coastline. And yeah, from Mandurah in the south all the way up to Alkimos and Yanchep now up in the north, the 60, 70k north.

But that's a real aspect that people like is the proximity to beaches.

As the city gets, it's not as congested, although it's getting more congested. I remember, again, growing up in Melbourne, as the city got bigger, the proximity to public transport became more important and getting around just because it got so congested. Accessibility around became really more important.

We really haven't been a big train line city. I still think that'll come. There is more train lines going in and there's more people starting to see that congestion using public transport more.

I think if you're within that walking catchment of public transport, particularly around train stations, you will see the same effect over the next 15 years that we have seen in Sydney, Melbourne, that people put that real premium on to have that accessibility increase.

In terms of deal breakers, look, nothing particularly stands out as a whole that would be any different to any other capital city. Certainly one of the things that we look for is

for a deal breaker for us is proximity to a lot of state housing and that's not to denigrate state housing tenants. There's lots of very good people in them and very nice people but unfortunately there's also

enough that aren't well-behaved that that can have a real impact on your investment property. I've seen that firsthand where proximity to state housing across the road just caused huge tenant turnover on an investment property that I knew someone had that we hadn't bought for them, but I knew they had.

So I think that's something that always to be conscious of is it's something to look for. It doesn't mean if there's one in the street you wouldn't buy, but if there's a high concentration of them, That's certainly for us a deal breaker and we wouldn't buy that sort of property.

So with all the population growth that's happening there, is it interstate or international migration?

It's a bit of both, Veronica, but most of it is, so out of the 93,000 people that came to WA, I think of the year to March 2024, there was about, natural growth was about 20,000, births over deaths.

Net interstate migration was about 12,000 and 61,000, the balance all came from overseas. So it's very much, Perth is an economy that,

um uh that people from overseas more readily come to than people from interstate i think and it's in large part i think i remember as i said grew up in melbourne i remember i'd sit there in the summer's afternoon watch some occasion of the test cricket when i had more time on my hands and you'd see the test in perth and you think oh this looks like a nice place to go one day but it's almost a foreign country it's that far away and i think that's the mentality in melbourne and sydney particularly people leaving to go interstate tend to go to queensland or they used to go to tasmania um

People don't move to Perth for lifestyle, even though it's a fantastic lifestyle. It's beautiful. And so it's very job driven, very job. So the population growth is very much going to go the ways of the economy. So when the economy is strong, the jobs drive people to come here.

And when the economy's soft, people tend to leave or we certainly don't get that population growth.

So it's very much, even though it's got a fantastic lifestyle and beautiful beaches and beautiful things to do, it's a job driven market for migration, far less than lifestyle, even though the lifestyle is great.

So obviously mining is sort of a big part of that. How vulnerable then do you think Perth is to big price falls or big changes in terms of demographics and population with regards to those jobs?

Is it just the mining industry or there is more diversity there now than there was, say, back in 2008?

Yeah, there's more diversity, but it's still very heavily a mining-based economy. The good thing is that now the commodities are becoming more diverse.

It's been largely driven for many, many years by iron ore. And we've got three or four very big players in that space who employ tens and tens of thousands of people.

But gold is certainly one of the second biggest – I think it's the second biggest employer In that space, look, lithium and nickel, as we speak at the moment, are getting whacked around a bit and they've had to close down some operations.

But a lot of the fundamental commodities that are going to be needed for the transition to renewables are located in WA. We're very blessed as a state and as a country to have all those resources. So it'll be more volatile, though. And that's something I think anyone investing in Perth and Western Australia

needs to be aware of, it's got a lot more volatility than you're likely to see in some of the other capital cities.

And particularly in the regional areas, I remember going back, we just bought a lot of housing in Portland and Karratha, sold out some of that for triple what we paid in three years later. But their sort of markets are very, very volatile.

So, yeah, Perth's certainly a lot less volatile than those areas, but you've got to be prepared for some volatility. One of the things that will be coming in is AUKUS. There is going to be tens and tens of billions spent on the defence sector.

In the Rockingham area, tens of billions with all the agreement with the US and UK and submarines. So that'll help with more diversity.

But fundamentally, Perth and WA are going to still be mining-based economies, albeit, as I said, we've got gas, gold, a lot of variety of commodities, but it's still fundamentally a commodity-based economy.

Have you seen some of the other influences? I mean, obviously you've got inside investors, you've got people upgrading internally.

Have you seen a lot of people, the brain drain coming that left Perth, maybe they couldn't get the job they wanted in their 20s, they moved to the Sydney or maybe they've moved overseas or maybe they're actually complete new to Australia.

Have you seen that Perth's getting a lot more people moving back that either were from Perth or new to the country?

Yeah, it's one of those markets where people have tended to, particularly from the career and corporate ladder. And that's, I guess, a throwback to when the economy was a lot smaller. There wasn't as many job opportunities as there are now.

So the city's around 2.3 million people at the moment, Greater Perth. So seeing people less likely to leave, but they do still would like to go and get that life experience. But they do tend to come back when they, that's the standard line.

They come back when they're ready to have a family and they want to settle down. And Perth's considered a great place to have families. But of course, not everybody comes back. Some of them go on to go and live elsewhere and don't come back.

But we are still getting a lot of international migrants and skilled migrants predominantly. who are backfilling for those people who left.

So, yeah, it's lots of engineering work, lots of probably much less a financial centre than you would see, obviously, in Sydney particularly and to some degree Melbourne.

But certainly engineering and the industries around mining, there's certainly other high school roles that do bring a lot of high school people in.

Is there any interesting strategies that you're considering for your residue? I mean, I guess I sort of had that buy and hold, you know, buying that bridesmaid or the place that's not gentrified, that's got all the same fundamentals, a place that should be gentrified, right? It's just a matter of time.

And now you're like, over the next 10, 20 years, get a better growth rate because it's not factored in. So that's sort of that strategy, but...

What about sort of the play where, you know, you buy a decent block of land that may be a great for a townhouse development, you know, when people get forced to buy more townhouses. Like, is there any interesting plays in the Perth market that you are considering for your clients?

It depends on the client. It's very specific to each client. So we like to sit down with the client and go through their goals, their objectives, and particularly their risk tolerance. What I've found from experience over many, many years in property is that when you talk to people about

buying a future development site, they get very excited and they go, oh yeah, this is awesome. I can park that away and in four, five, 10 years or whatever, I'll build four townhouses.

But then they forget on the way through, because it's a future development site, often the house is in pretty ordinary condition and the quality of tenant you get is not necessarily very strong. The property needs a lot of repairs and maintenance, your negative cashflow. So people get burned out. I've seen that happen.

Yeah, yeah.

And so certainly I think that the median density story particularly will come in much greater waves in Perth. So yeah, certainly if it's the right client, I would be suggesting to them that they buy something that's got the zoning capacity or...

or even if it doesn't have the current zoning capacity to develop, it's pretty clear where the city's going in terms of their activity centre policy and zoning around activity centres.

We've bought a lot of properties, even in the market downturn, we bought a lot of properties that performed up 30%, 40%, even when the market went backwards, simply because we could foresee, based on the state planning policies, where those activity centres and where that zoning was going to have to come in.

And sure enough, ultimately,

did in some cases um and uh and although some of the councils are a bit slower on the uptake than others so so development sites can work for the right person if they've got that risk tolerance and you've got to sit on it you're going to be prepared to sit on it for for a long period of time but we're looking at the granny flats again um we did a number of those over the years as a dual income strategy uh it's just that the cost of construction in perth is uh

has blown out substantially. I could build them for $120,000. It feels not all that long ago. Well, now it's pretty much getting closer to double that. So that is something that we're looking at again. If about getting a dual income strategy on properties, I think that's something worth considering.

But it's not really stacking up a lot of places at the moment. But if we do continue to see rent price growth, then that's certainly – might start to make some more sense to buy a property where you can put that granny flat out the back and get that dual income strategy.

Are you expecting, I guess, a lot of investors to bail when things do taper off? Because I imagine that, you know, casting your mind back again, I guess what happened to the rental market through the downturn?

Did you find that you had a real shortage of stock because there really wasn't a lot of people investing or people that were basically getting up because they weren't holding on to their underperforming assets? And if that's the case, would you think that that could happen again?

No, in the downtown, we actually saw rents go down as well. Rents went down from that. And that was just simply population. I mentioned earlier that we had 93,000 people, population growth in the state, which is pretty hefty for a state that's got just on 3 million people.

That was over 3% growth in...

in the year to March 2024.

But in the downturn, we had 16,000 population growth. So just the pure weight of numbers meant that even if investors were selling, there was just simply less people around and rents dropped $100 a week over a four or five year period. So

So very much, look, you'll see some areas that investors will take their money and run. I think particularly the East Coast investors have come in here. If they got in four years ago, they've made some really good money. That's something that they'll possibly do and take back to their home markets.

But look, it'll be more suburbs specific where you're going to see that herd. Those suburbs I mentioned earlier where we had that huge number of interstate investors come in. They're the ones that are likely to be hurt. But I think generally in the market, we've got a real rental shortage.

I think also what we're seeing is that a lot of those investors, that baby boomer generation, I certainly know people in their 70s who, it doesn't matter if it's a good property, they've just had enough. They've had enough with the tenancy laws. They've had enough with...

Some of the things, and they're just at that age where they go, I don't want to deal with the phone call at Wednesday afternoon about my hot water system. So that's something else I think we've all got to watch, not only in Perth, but around the country.

Who's going to replace those baby boomers who are getting out of the market? Not because it's a bad investment, just because it doesn't suit their lifestyle anymore.

Yeah. And also, interestingly enough, I mean, talking about the type of investor you might buy, sit on a potential development site, you know, there's going to be an issue there with habitability standards, which it's great and I'm not against making properties habitable.

However, those sorts of properties will get to a point, certainly in Victoria, I think people would struggle to rent them out. They wouldn't actually, they wouldn't be legal. And so that's going to change that as a strategy for investors too, right?

Yeah, now we were, when I was at REWA and I was the president, we certainly were very strongly lobbying the government and our tenancy laws did change, but they were very moderate compared, certainly particularly compared to Victoria where they're very, very anti-investor. The laws here are not, we still have the right to

end of tenancy at the end of the term you don't have to give grounds and I think that's a fundamental right as an investor if there's a relationship breakdown you don't want to release to that tenant you should have that right and obviously you don't have that in Victoria and unfortunately many other states around the country at the moment and the habitability issue there was some minor changes you've got to have some locks and a few different things but nothing like what we saw in Victoria and you're exactly right

Veronica, all it's going to do is deter investment and some of those properties won't be habitable, won't be rented out at all.

Yeah. We've got our property done by Forrest to finish us off today. I'm sure there'll be a few happening over there.

Well, I think the – I'll never forget this.

I moved to Perth in the late 90s, and I went to – I did a postgraduate degree at a university here in real estate, and I remember speaking to a lecturer who was very academic, and we had the conversation about investing in residential property, and he was – all these spreadsheets kept –

coming back to me and saying, Damien, it doesn't make any economic sense. This is in 2000 or 1999. And the median price in Perth, I think, was about $150,000. And he said, it doesn't make any economic sense, Damien.

I won't invest and I'll wait for the market to come backwards and then I'll get into the market. And of course, he didn't buy. And then I ran into him in 2008. And of course, the prices had got close to $500,000 by then. And he said, oh, no, I wouldn't invest now.

He was probably right then. But he still set out. And I ran into him. He was retired in 2019. And he said, no, still not a good time to invest in property.

So he'd never actually, he was a lecturer in property, owned his own home, never actually took the plunge to invest in property. And I think Look, we'd all like to time the cycle and we've got to be careful about where we buy and what stage of the cycles we buy.

But fundamentally, if you're going to bid it for the long haul, trying to time the market precisely often means... I've seen far more money lost by sitting on the sidelines than I have by making... average to poor investment decisions over the long run.

Yeah, you can lose some money if you make a dumb decision, but I think I've seen a lot more money lost by people making no decisions. So I should give him a call and see what his thoughts on the market now. I bet they still don't get in. It's not a good time.

Wait for prices to fall. Wait for it to fall, yeah.

It's a classic. Yeah, it's interesting, isn't it? You look at the market as a whole using those sort of aggregated data and you can see that generally speaking, prices spend more time in positive than they do in negative. But people can make individual property decisions and completely buck the trend.

They can go backwards when the market's going forwards and vice versa. or they can do nothing and then actually get no benefit. Thank you, Damien. As I mentioned at the head of this, it was a long time coordinating our diaries to get this to happen.

We've been great that just before the end of the year we're recording this and we'll be, I think, bringing it to air before the end of the year as well. So thank you so much for your time. Wish you a happy Christmas and New Year.

Same to you, guys. Great to be here. Thanks, Damien. If you have a question that you'd like us to answer in an upcoming Q&A episode, you can send us a voicemail or written question via the website, theelephantintheroom.com.au or you can email us directly at questions at theelephantintheroom.com.au.

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