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Is Perth Peaking? Why Investors Are Looking Regional WA in 2025 · The Follio Property Podcast

• 0:00
  What we were really keen to chat to you today about is the regional markets in WA. Now we're in the next phase of that. Obviously, Perth isn't cheap anymore. Wave cycle these regional markets that goes from an investment wave to an occupier, and can you see these markets being sort of overheated? That's a really stark example of where the market's heated. Can you forecast further runway in these regional markets? If you're going there for investment purposes to get a return, I'd just be really cautious. How do you see Rockingham, where it's at and why it's different from Mandurah?
• 0:27
  Completely different locations. Everyone needs to understand that bit. $600,000 to $700,000 to spend in regional Western Australia. Where are you going? You're listening to the Folio Property Podcast. I'm Rhys Beddle and I'm here each week with my co-host, Lachlan Delahunty. If you're enjoying the podcast, do us a favor, hit like, hit subscribe and leave a comment so we can grow this channel and get to bring the amazing guest in again today. Brendan Ptolemy.
• 0:57
  industry legend i said last time just ticking to 30 years experience over 20 years as managing director of heron todd white um what we were really keen to chat to you today about is the regional markets in wa we get a lot of questions through our channels about regional we haven't spoken about it yet in the in the five six months we run this podcast so really keen to get your opinion on it
• 1:20
  Yes. Well, I think what people are probably looking at there is price point. So we're going through a cycle where part of the value growth of Perth Metro was driven by East Coast investors looking at the price point and the affordability, essentially saying that Perth was cheap. Now we're in the next phase of that. Obviously, Perth isn't cheap anymore.
• 1:42
  depending on your perspective. And then now they're looking around the regions going, far out, I can buy a house on a half decent block of land for $300,000, say, in a regional town close to Perth or up as far as, say, Gero, at the cheap end of the market.
• 1:58
  Then they're looking at return when they get to the expensive end of the market. So when you talk about, say, the Pilbara, maybe even the southwest in terms of Dunsborough and Albany and Esperance in terms of Airbnb involvement, you're looking at trying to make a return that's post 10%, which obviously is a really good return on residential property.
• 2:18
  I guess that's the benefit of regional investment, right? There's a huge wave across the country of buyers' agencies or investment groups taking really strong position in regional areas. I've spoken about it on the podcast. I have concerns about this because it's almost like a wave of investment goes into a locality, drives prices above what the local market can afford, and then they exit, leaving a market to fall off a cliff. And we've seen that. And we've seen a little bit of that. We took a really strong position in Rockingham and Mandurah,
• 2:47
  2019 to 2023, during that period, that market well and truly outperformed Perth Metro. We've seen almost 80, 90% uplift in about a three-year period. We're talking competing only with buyers' agents, no local investment at all. Started this year, it certainly felt like it completely softened.
• 3:09
  Talk us through that, your concerns, that market in particular. What's the sort of wave cycle of these regional markets that goes from an investment wave to an occupier? And can you see these markets being sort of overheated? Yeah. Yeah, Manja's a great example. I remember being at Christmas Drinks last year, ran into one of the principals of one of the agencies down there.
• 3:29
  The East Coast buyer agents had literally pulled out two weeks before and he went from 23 people at a home open at a listing to pretty much one. So you've gone from local investors, East Coast investors, buyer agents coming through the door to essentially one local buyer that –
• 3:47
  was left standing and probably got a really good deal on the way into Christmas as a result. So that's a really stark example of where the market's heated and you've got to, from a valuer point of view, you've got to understand who's coming there at home open, who's making those offers, who's driving the prices up, because we want to assess a bit of that risk when we're doing that valuation. It's actually happening right as we speak in Geraldton. It's a really good example of where the East Coast buyer agents are looking at that and understanding the...
• 4:17
  Well, we should understand that their perspective is that it's still a really cheap buy-in. Fundamentals in that location are probably even slightly better than, say, a Mandurah location. Why is that? Mandurah's socioeconomic, what we say on our valuation reports is that there's a section on local industry. So what is the local industry driving that Mandurah market?
• 4:38
  Essentially, it's tourism and essentially retirees. The proportion of population there that are gainfully employed to a level of salary that essentially can drive a market upwards and upwards is not fantastic.
• 4:53
  If you overlay that same scenario and criteria on Geraldton, you've got an undersupply situation. You've got a pretty gainfully employed local population. There's a few different industries that are invested there from tourism to the local fishing industry. A bit of start-up stuff, so in terms of renewable energy and then also some data play in terms of data centres. And then the renewable stuff is kind of right place, right time. Solar and wind are obviously...
• 5:22
  A really good scenario for them. And then they've got some mining stuff around there as well in terms of coming through the port. So you've got some angles in terms of employment. The other really big one is government. So government are actually undersupplied for housing in the locality and they're undersupplied for facilities.
• 5:40
  So that's driving both construction plus the demand for the accommodation around that. So relatively good fundamentals if East Coast buyer agents have done their homework in that location. Interesting. So from your perspective and what you're seeing, stronger market potentially than what we saw in Mandurah two years ago? Yeah.
• 5:58
  Yes, yeah, yeah. And so the scenario there is when we go back to the affordability side of things, there were really cheap blocks of land probably six months ago. A year ago, you could just buy whatever you liked. Now we go back to a feasibility side of things. It's not going to be feasible to produce more blocks of land. So when what is there is sold out,
• 6:19
  we end up with that scenario of undersupply. So then you also go to the established dwellings. They're being driven up in price as well because we're going to end up in an undersupply scenario. Now, caution to people from the East Coast, there are some really ordinary suburbs, I'd have to say. I'm a valier and I'm just going to be brutally honest. There's some ordinary suburbs with some ordinary socioeconomic issues through Geraldton. So you just want to make sure that you're buying in the right location. It's similar to Bunbury.
• 6:48
  Yeah, absolutely similar to the eastern side of Mandurah as well. And that's just the reality of what the world looks like. And so you shouldn't be paying a premium to be in those locations. Being a city, a great locale. And we talk about location is the most important fundamental when buying property for investment. But we get a lot of questions and queries about reinvesting down south. And Bunbury comes up a lot, such as Mandurah and Rockingham.
• 7:13
  Certainly find it hard to advise clients to invest in a market that's done 80 or 90%. What's your sort of view on that and sort of can you forecast further runway in these regional markets? Can the local market afford a property for $650,000 when four or five years ago they could buy that same product for $350,000?
• 7:31
  Yeah, so probably the easiest way for me to describe that is that Pilbara market where we see the peaks and troughs of it essentially driven by the local players in the market. So the local people that live there, in particular in Karratha, where we can see...
• 7:49
  Property surge in value a bit, then it calms down. And the surge is often driven by the locals going, right, I think this is good value now. I'm going to sell out to that investor who's willing to pay what the local market perceives as too much. And then they take their profit and then look for another opportunity in the location at a lower value point. So they might have bought something
• 8:10
  put a pool in, put a patio on, spress it up, onsold it, made some money, make it really rentable, and then they go back and do the same scenario again. So we can see that push-pull in those scenarios. And essentially that's when the East Coast or the out-of-area buyer essentially gets...
• 8:27
  I suppose, a little bit victimised. They're also getting a really good product and a really good return to get into that marketplace. So the real worry is the affordability price point in the locations like Geraldton where, yeah, those locals will have had a value increase because the market's been driven up, but are they in a financial position to then go forward to be able to buy the next product? Again, we're probably seeing that in the periphery of
• 8:54
  Perth in places like the Avon Valley through into York, 2J, Northam, lots of Perth people moved out there for an affordable place to live. They wouldn't be able to sell what they've got now and then use their current cash flow to buy something else in the same location without a huge capital injection. Yeah.
• 9:14
  Just to go back to the Mandurah and the Geraldton referencing we had there. So similar trend you were saying, Geraldton's going on as what Mandurah did. Lachlan mentioned earlier, you know, the market did soften in Mandurah because questions are, has the market picked back up in Mandurah? And from a risk and reward perspective for Geraldton,
• 9:36
  is there, like, it feels like there's sharp inclines because of the buyer's agent activity, but are they going to be at risk of sharp declines as well once they start to exit the market? Yeah. So, manager is an easy one for me to answer because we've got experience there where it just, it shoots up by 30 odd percent and then just comes back down and it comes back to the fundamentals of that location that I mentioned before. So,
• 9:57
  I'm never a strong buy on Mandurah. It's a lifestyle location. If you're going down there to buy a canal property and park the jet ski out the front, that's great. That's a good decision. Make sure you buy a nice property that you like and go and enjoy it. If you're going there for investment purposes to get a return, I'd just be really cautious. You want to be making sure you buy a bargain in that location and you want advice on how to do that.
• 10:19
  The Geraldton situation is, I think, when we're in stockbroker type terminology, it's still a buy, mainly because it's still affordable. And we can see that there will be an undersupply scenario in that location in the future. But again, if you don't live there and you've never been there, I'd still be really cautious. I'm a valuer. I'm conservative. I wouldn't be buying anything in those locations without getting a really good idea of what you're purchasing.
• 10:45
  And then to throw, and I know you don't technically class Rockingham as regional. We do. And when we say we took a strong position in Mandurah, we class Mandurah and Rockingham really under the one umbrella, which from today's conversation probably shouldn't. How do you see Rockingham, where it's at, and why it's different from Mandurah?
• 11:01
  Yeah, so Rockingham has that local industry that I mentioned before. So there's a half-decent employment base there. Obviously, you've got Kwinana Industrial Area up the road. You've got the Henderson Shipyard where the federal government have announced they're going to spend $127 million. They're just on the planning of how they reconfigure that location.
• 11:19
  I'm not even sure from what I've read that they know what they're meant to be doing there. They're just throwing a whole lot of money at it to go, right, this thing needs to be able to accommodate the construction of essentially naval boats, so patrol boats and some army vessels and stuff that I don't really understand.
• 11:35
  Essentially, they're trying to bring a massive amount of workforce there. The point being, if they're going to throw money at that new industry, and the idea here is that we're creating a defence industry for that location. So my confidence of that area is predicated on that all going ahead. But the confidence of that going ahead in the world climate, I mean, it is pretty high.
• 11:55
  And then it essentially brings one more high value career or industry and career opportunity for people to be located in there. And then you get back to good old Perth, south of the river, a little bit of stigma. It feels like it's a long way away. Remember my parents, that used to be the place that you'd go to the Sunday session because it's the only place that was open as a...
• 12:18
  as a licensed venue on a Sunday, weird stories like that, you know, 50 Ks away from where they live, but you go down there for a beer. No RVTs back then. But so it's always been a little bit of sleepy hollow. But if you take the Perth local stigma away from that and take a look at that location as a lifestyle opportunity, it's actually really, really good. You know, it's good, good coastline, some really good restaurants and cafes and pubs and that kind of stuff around there. So I think that underpins that value into the future as well.
• 12:47
  shouldn't have sold my place in Rockingham. Bought it 12 months ago for $450, slight renovation and just sold it for $650, which shows the strength of the market, these regions, when they go, they go very fast. But for me, it just comes back to the fundamentals. Can the local...
• 13:02
  buyer, and that's what I always look for in an investment, right? Will a local loan occupied buy this property and can they afford this property? And from what you're saying, they will find a way. And I think there's the salary and wages sitting underneath that location to be able to drive that marketplace, whereas that's not the scenario in Mandurah. Yeah, makes sense. And then to throw...
• 13:23
  to the mining sector when we look at the Pilbara, Port Hedland, we certainly don't invest in markets that carry a lot of volatility and I'd throw mining towns into that. But it sounds like it's a bit of a, is it a different play in 2025 compared to what it was back previous boom when we look at Port Hedland and what's happening there, et cetera? Yeah.
• 13:44
  Yeah, certainly a different play in terms of it's not as frantic as it was. There's always investors cycling through there because of the return you get. Just caution everyone, if you're getting a higher return, it's because the risk is higher. And so if you're buying into those Pilbara locations, you are always taking more risk.
• 14:02
  just one of the fundamentals is so the weather's different right so everything deteriorates more more quickly in those locations so maintenance on the dwelling is is higher you've always got a cyclone risk that type of scenario so while you're getting your 10 12 15 gross yield just take those things into consideration in particular one of the most simple things is insurance costs in that marketplace will will be more than double they are in the you know in a Perth metro so just
• 14:29
  be wary of all those things when you're getting in. So your net returns are going to be, they're certainly going to be higher than they are in a metro. Probably a split air con in every room as well. Yeah. You have a good maintenance on that. Yeah, absolutely. And so just be wary of those when you're getting in. I wouldn't, as long as you're an experienced investor and you know what you're getting yourself into, I wouldn't discount it or exclude it from the concept that it might be part of your property portfolio. Yeah.
• 14:54
  And then the other scenario is just that what we talked about before. So locals understanding the market. There's always those little opportunities and there are some good locations. And then just the longer term fundamentals of those locations. So we get back to that local economy question. Karratha underpinned obviously by some energy, the energy industry industry.
• 15:16
  obviously the iron ore industry and some other industries that are developing up there, that town will continue to grow. Good local government investment and state government investment in terms of funds going into Karratha. Port Hedland's pretty similar, but it has a bigger undersupply issue. So Karratha has an undersupply issue, but there are people bringing some supply to that location, whereas Port Hedland's got a severe undersupply issue because they're actually taking supply out of the market because of the...
• 15:46
  the buyback scheme that's happening with the port. South Headland, completely different location, so everyone needs to understand that bit. And investors like it because they always get a really good return there. There's some slightly different product through there. I would encourage everyone just to get their heads around what happens in that location in terms of what you're buying into. So just invest in.
• 16:07
  Yeah, with caution. But where are we at with this cycle? Because you fast track people buying in there 15, 20 years ago for $300,000. They surged up to well over $1 million, $1,1, $1,2. And we're talking for standard sort of four by two dwellings, often less, three by ones if it's the older stock. Then prices completely cut down to back down to $300,000, $350,000, right? Yeah.
• 16:31
  Talking through that cycle, what happened? And if you had to throw a number on a property clock, where do you think that market is?
• 16:39
  Yeah, so the interesting part of watching that cycle and experiencing it, so we're really lucky. We essentially were still growing our big business in regional WA and we didn't do any of the valuations on the way up in that market cycle. Did you save yourself then? There was a bit of luck and a bit of capacity issue and that kind of stuff. But anyway, what that meant is that we could get in on the way down on that cycle. So just to give everyone an idea of what happens in a smaller market when essentially it falls apart.
• 17:09
  And that's when property becomes an illiquid asset. So everyone starts to understand that the market is stock going up. It starts going downward, and it doesn't free fall overnight, but essentially it's going down. It's not like the stock market.
• 17:27
  because there's no transactions until there's distressed sales. And so essentially people will start to try and sell their property themselves. They know they're in trouble. They might have lost their tenant in the cash flow. They can't afford the repayments. So they're still in control of their destiny. They try and sell the property.
• 17:42
  They're too emotionally involved and won't take a lowball offer. Often there's no one to buy it on the way down because the buyer is smart enough to understand that this thing's dropping pretty rapidly and so they don't know when to get in. And there's caution, right? There's no sentiment in the market. No one's buying. They'll use that caution and go, I'll just wait for this. I've got time. And then you end up with a distressed sale situation. Now, the mortgage providers, in particular big banks, are now smarter at the way they don't do this. They can see the markets falling apart
• 18:12
  We actually had bankers and the risk guys from Melbourne, the property guys from Melbourne flying into Karratha to go and understand that market. Essentially, it dropped by 66% on our analysis from top to bottom. And that happened. It's a huge fall. It's massive, yeah. And that happened over about 18 months or so. What year was that? Yeah.
• 18:32
  Well, I think that was, is that 13, 14? 13, 14. I stand corrected on that. And I'm trying to remember the graph I made back then. But essentially what happens is you end up in that situation where the person that owns the property
• 18:47
  the decision about the sale price gets taken out of their hands and it gets put into, say, a property risk type person out of a financial institution. And they essentially will understand the debt position and how desperate the seller needs to be. You know, we can still recover $500,000 out of this property. The debt's $400,000. Let's just sell it. New beauty. We're going to cover the debt and the person can move on in life.
• 19:12
  That would have been the best case scenario back then. So that's the cautionary tale in terms of the fact that you do lose control of your liquidity holding a property in a smaller market where there's less demand. Just to wrap it up, I guess, in terms of the regional, down south more those lifestyle options, your Margaret Rivers, your Dunsboroughs, your Busseltons to a certain extent. Yeah.
• 19:38
  Is there value for an investor down there or is that purely the lifestyle movers from Perth moving down, maybe driving some growth down there?
• 19:46
  Yeah, so definitely Dunsborough is still very much lifestyle driven by essentially the Perth market and value growth in the Perth market where that capital is now transferring to that location. If I'm going to buy another property, I might as well make it a holiday home. That drifts into Busso as well, into Busselton. There are some different types of property in terms of being able to buy different assets through Busselton. So maybe a villa or a unit or something that might attract an investor. Absolutely.
• 20:15
  Margaret River, to an extent, is very much similar, but there are a more diverse range of properties to buy there. So a bit of lifestyle, but a bit of traditional kind of suburbia on the outskirts of a big town, which might be slightly more affordable and probably would achieve an okay rental return. But if you're an East Coast investor, I'd be really cautious in there because you're competing with essentially local buyers that have cashflow and capital, and then you're also...
• 20:44
  as in that are based down there, and then you're also competing with Perth people trying to buy into that market for, essentially I'll buy something, rent it out in the short term and it'll be my holiday home into the future and I'm willing to pay overs for the right product.
• 20:57
  What about the airport that they've recently done there in terms of obviously connections over east, but mainly the FIFO connection as well? I know a lot of my friends are starting to make the move down because they've got options for to work on the mines. Has that driven any part of the economy down there? Yeah, I think it's driven a fair amount of FIFO location down there. If I'm going to be away from home, I might as well be based around Busselton Airport in either direction.
• 21:23
  The other thing that I've heard recently is just retiring farmers going into that marketplace. So it used to be them coming off the land and essentially going to their location in Perth Metro, often Como or Western Suburbs. There's actually a fair number of them through Dumsborough Lakes and Busselton and those types of locations. So they're also driving some demand in there as well.
• 21:45
  Last question. You've got $600,000 to $700,000 to spend in regional Western Australia. Where are you going? Sounds like Geraldton. Are you going anywhere? Yes. How are you investing? I'll just give you my brutal honesty. So I'm spending that money on a modular to put on the block I already own in Exmouth. Thankfully, I've got a duplex block there. Well, it's actually a triplex block, but we'll put two on there. And I wouldn't discount that as an option in terms of both short-term rental because of the drive of the economy in there.
• 22:14
  They haven't got time to go through that. Bit of defence stuff, bit of tourism stuff. But if you could get a product in that location, it also is a great option for a holiday in the future. And then, look, I would look around Geraldton in terms of, because you bang for buck at that price at this point in time, I'd try and buy the biggest block you could. What's that two point? With the established dwelling on there.
• 22:36
  Well, there's entry point as low as 300 grand, but the feedback from a value in town is that 600 to 700 is pretty hot at this point in time. So if you could get a, say, 1000 square metres in somewhere on the edge of Gero that has duplex, triplex, quadruplex potential, I'd be looking into that as well.
• 22:53
  anyone got any comments or feedback from this episode, things we want to talk about, please drop them in the comments because I think this will be well received. Like I said, we get a lot of questions on this. I'm sure there's probably more from what you said, but Brendan told me, thanks for coming in for round two, man. Thanks, Rhys. Thanks, Lachlan. Cheers, mate. You've been listening to the Folio Property Podcast.