The Emergence Of Perth
WA has now emerged from an extended period of correction and consolidation. It is now certainly warranting our investment attention. The next period, we believe will present a sweet spot to invest. A time when we can negotiate very well, secure property under market value and position ourselves just before the uplift in values really takes flight.
But how can we be so sure?
We track the individual suburbs within the wider city area
When looking for the emergence of a wider city area, we do not track the city, we monitor the individual suburbs within.
We look for an increase in the numbers of suburbs within the wider city area, which are exhibiting what we call “strong imminent growth signals.
Currently, we are observing a spike in Perth suburbs, within the inner city limits, demonstrating strong imminent growth signals. We have seen a very strong progression from zero suburb areas pinpointed in May to eight suburbs today.
We also like to see clustering. That is, multiple suburbs in close proximity exhibiting the same sort of “growth signals” at the same time. The graphic above demonstrates the number of suburb markets that are currently exhibiting these “strong imminent growth signals” in the Perth greater area. We have identified strong clustering in the southern zone of Perth, out to about 10 km from the CBD, concentrated along the train line.
We don’t track Causal effects.
Casual effects include: Population increases, job growth, average wage growth, infrastructure spend, new hospitals, gentrification, the list goes on.
The reason we do not base our research on causal effects is because there is far too much noise in doing so and it is impossible to use these measures to time the market accurately.
For example, when a train line is constructed, when will it result in growth? When there is the announcement, when construction begins, after it is completed, or two years post when locals are raving about the shortened commute to work to their workmates.
There may be many casual elements that combine to lead to growth and each market is impacted differently by varied causal factors.
In analysing the current Perth market, we are not interested in tracking the mining boom, its contraction, its recovery. Our focus is not on monitoring the population trends or even the price of a latte.
We would equate tracking causal elements, such as these to water divining. You never know what casual element to follow, at what time, for which market.
When you hear a professional referring to causal elements as justification for a purchase, then you know their systems are sub-par. They may be a slick salesman and sound competent. They might even refer to ABS data, but in reality, they are only really able to tell you in loose terms WHERE the growth is likely to occur. They do not have a clue exactly WHEN that growth is likely to occur: today, 6 months, a year, 2 years.
As an investor, I would much prefer to have an investment grow from day one of purchase. Not kick off its run 12 months down the track.
Our Ripehouse AI research engine has backchecked, tested and churned away at this for many years.
We do not look at causal elements for finding markets set for imminent and outstanding growth.
We look at the back of the book, the cheat sheet. We look at the answers: THE EFFECT. The actual impact of the multitude of causal factors on the property market, and how this can be reliably understood to position yourself just before imminent growth, time and time again.
How do we track effect in emerging markets?
Each market behaves in precisely the same way. Time after time, irrespective of employment, infrastructure, a new shopping center, a university, whatever the causal element, the same imminent growth signals appear, in pretty much the same order.
What is this EFFECT? We look for the following signals:
Firstly, we want to see rents and yields increasing together. This means that tenants are piquing their interest in an area. They are generally the first grouping to shake a new market out of a slump. They are moving into the area first, dipping their toe in the water by renting, and seeing how things pan out (before they potentially buy).
Secondly, we look for sales volumes starting to increase. Now we are in a high yielding environment, very attractive to investors. We are beginning to see these early renters loving the area, wanting to take the leap into homeownership: their job is going great, the kids are happy at school, we see these new renters starting to buy. Consequently, we notice wholesale increases in sales volumes.
Thirdly, we like to see supply tightening. We measure this by analysing days on market signals, the time it takes to list and then sell a property. When this number starts to decrease it demonstrates that properties are selling at a rate that is higher than the listing of new properties for sale. In very simple terms demand is out stripping supply.
At Ripehouse, we look at up to 121 different market signals, applying sophisticated Artificial Intelligence to help us in this process on a daily basis. After nearly a decade, our analytics can reliably detect these stars aligning (indicating “imminent growth”) before any other research provider in Australia.
Where has this growth happened recently?
Our experience has shown that when a city is emerging from a consolidation period, the suburbs at the higher end of the market emerge first. We have seen this is almost every single emergent growth market predicted by Ripehouse over the last 5 years. An excellent example of this is when we released high-performance research, recommending the emerging Hobart market in 2015:
Our research engine identified the Hobart emergent market in 2015. Soon after we were also the first research provider to recommend Geelong.
Additionally, we reported on similar market behaviors in other emerging markets - including capital cities like Adelaide, key satellite like The Sunshine Coast, and Regionals like Ballarat (amongst others).
And, it’s happening RIGHT now in Perth.
So, what does this all mean? Well WA is undoubtedly now worth our attention.
We are three years POST our recommendation to invest in Hobart, and now it has reached the mass media proliferation stage. The boat has sailed on Hobart, and the cracks are already showing that growth conditions are slowing: and when they start to slow they slow quickly.
Other markets like Melbourne, Sydney, Darwin, and Brisbane are consolidating, contracting or confused, while Adelaide is looking very strong.
So while we are still bullish on Adelaide and would probably recommend most mum and dad investors invest in its growth markets, Perth is now accelerating quickly, and for the investor who is an early adopter, who likes to be the first to a party, Perth is now standing up strong.
Our analysis indicates that Perth is building for an almighty upswing. If you are willing to buy before the BBQ conversation starts sprouting the virtues of Perth, then the rewards can be tremendous.
After all, the early bird catches the worm.
Presently, you have the absolute pick of distressed vendors and can buy strongly under-market by negotiating hard. The real opportunity here lies in positing yourself in prime growth pockets, ahead of the masses.