Port Hedland and Karratha "the best places to buy"? Don't get roped into that one

Real estate would be a delight for investors, were it not for the real estate “industry”.

There are times when the industry appears to exist only to mislead consumers into taking action not in their best interests.

Consumers’ best interests are subverted by industry vested interests.

There are myriad examples. Here’s one. There’s a company that makes it money marketing property in specific locations. But the principal markets himself as a mentor. Someone who guides investors on how to buy the best properties in the best locations.

A recent promo advised consumers on the best places to buy for high yields. By the purest of coincidences, the “top three picks” in Australia to buy for positive cash-flow were all places where the company is marketing product.

They included the company’s specialty area, the Pilbara region of Western Australia. South Hedland and Karratha were recommended as the best places in the nation to buy.

Here’s the pitch from the “mentor”:

“I’m a big believer in investing for cash flow and I’m always keeping an eye on which locations around the country are performing well in this area. Knowing how to locate these is vital if you want to find positive cash flow properties in Australia.

“I have some great strategies for how to locate high yield investment properties, but for now I want to share with you my top three property picks.

“There are plenty of towns where investors are achieving higher yields than those that I suggest. However, I have greater confidence in the long term outlook for the ones I’ve featured in my blog.”

He then suggests areas in which his company is a major marketer of off the plan apartments and other properties.

Here’s the reality for Port Hedland/South Hedland and Karratha. Both markets are in decline but remain outrageously overpriced.

The median house price for Port Hedland was $1.2 million, but has dropped 17% in 12 months and is now down to $970,000 - still way too high for investors to consider.

Rents have declined a lot so, despite the price drop, yields are typically 8%. In the boom times they were commonly 12%. Vacancies have been around 6% since late in 2012 and this market is still falling, with discounting of about 11%, according to Australian Property Monitors.

Here’s the reality for Port Hedland/South Hedland and Karratha. Both markets are in decline but remain outrageously overpriced.

Nearby South Hedland is also in rapid decline, with the median house price down 6% and the median unit price down 14% in the past year. The marketing company says yields from 9% to 12% are typical, but APM says the median yields is 7.8% for houses and 7.5% for units. It takes six months to sell on average, with discounting around 12%.

It’s even uglier in Karratha, with price decline steeper, yields lower, discounting higher and time on market longer.

In the Karratha suburb of Nickol, the median house price has dropped 17% in 12 months. That includes 5% in the most recent quarter, so the market is still falling. The last time there was any price growth was 2010, with the market sagging an average 12% per year for the past three years.

Discounting is around 13% and it takes five months to sell the average Nickol property. In nearby Pegs Creek, it takes seven months to sell.

Typical yields are claimed by the marketing company to be 8-10%, but APM indicates 6-7%, amid 6% vacancies.

Keep in mind that the mentor says these are not just good places to buy, but the best places to buy in Australia. Mentors like this you don’t need.

To provide a further feel for how this organisation pitches to consumers, here’s what is claimed to be a testimonial from a “seminar attendee” …

“I spent an evening at (name of presenter)’s seminar and all I have to say is: this guy delivers. It was a supersonic combo of strategic investment insights and wealth-building how-to’s from people who walk the talk. Incredible speakers, killer content and amazing connections, all brought together in one jam-packed evening. They clearly have a talent for creating a valuable, education, high-energy experience.”

The chances of a genuine customer writing such a tribute are zero. A “supersonic combo”? Who talks like that?

You will note they claimed it came from a “seminar attendee”, which was probably a team member or possibly the seminar presenter himself. Technically, it’s not untrue.

You can contact Terry via email or on Twitter.

Image courtesy of Wikimedia Commons.