Prices in one of Australia’s former boom cities are yet to bottom out, according to one expert – with the subsequent market recovery expected to be long and hard. But do this city’s woes hold a cautionary tale for investors in other markets?
The troubled Perth market is yet to see the bottom of its downturn, according to CoreLogic RP Data’s head of research Tim Lawless.
Despite the market experiencing a dramatic dip over the past year, he predicted that the city has yet to reach rock bottom.
“Values are still down, a little bit more than say six or seven per cent from peak to trough, but I’d say there are still some further falls in line for the Perth market before it starts to level out,” Mr Lawless told Smart Property Investment’s sister publication, Real Estate Business.
He explained that several fundamental market indicators needed to demonstrate an upward shift before the city’s market could be described as being in recovery.
“Until we start to see listing numbers levelling out and transaction numbers levelling out, I think there [will be] further falls in that market. So at the moment we’ve seen transaction numbers fall by nearly 15 per cent compared to the same time last year, and we’re seeing listing numbers rising quite rapidly and rents are falling quite rapidly as well. So we need to see all of those factors really start to stabilise before value declines will bottom out."
But the news gets worse for investors who have held on to their Perth properties, according to Mr Lawless – with values unlikely to undergo a dramatic rise in the near future.
“I don’t think we’ll see value falls of more than 10 per cent, maybe 10 to 15 per cent, but what’s more likely is that after the market does rebalance there will be a period of time where values simply move very little, maybe in line with CPI.”
Damian Collins, managing director of Perth-based Momentum Wealth, agrees that there’s little prospect of a short-term recovery in the city’s overall market, but disputes Mr Lawless’ figures.
“I would certainly suggest that you’re not going to see any capital growth in Perth in the next 12 months, whether it declines and how much it declines is difficult to assess, but I think 10 to 15 per cent is probably an overestimate of where we would see the market,” he said.
Rory O’Rourke, principal and licensee of O'Rourke Realty Investments, argues that the Perth market is showing signs of recovery already, but even he concedes that there are lessons to be learnt for investors throughout Australia, judging by what has happened in his home city.
“There was always too much spreading, we were spreading out to Yanchep, we were spreading down to Mandurah. Now buyers and renters have become very conscious about the distance of travel.”
Mr Collins agrees, stating that east coast investors can learn a lot about timing the market from the Perth experience – with an ominous warning for recent Sydney and Melbourne buyers.
“There were still properties bought at the end of 2007, at the end of the peak of the last boom in Perth, that are still below the value they were back then. Yet there are other properties that people bought four or five years ago that are up 50 or 60 per cent.
“The smartest investors buy counter-cyclically. The smartest investors in Sydney and Melbourne were the ones who bought three or four years ago before the market took a big run up, and the same will be for Perth – the smart investors will be buying in the next 12 months, that’s the time to be buying.”
The recent strong performance of suburbs like Forrestfield reinforce the importance of targeting suburbs with value-adding potential as a way to counter market downturns, according to Mr Collins.
“There’s still demand for properties with value-adding opportunities. So we’ve seen area like Forrestfield which has had a good run up, even though the Perth market overall has gone flat the Forrestfield properties, because of proposed rezoning and proposed infrastructure coming into the market there have performed quite strongly over the past 12 months,” he explained.