Property market update: Perth, November 2018

CoreLogic’s Housing Affordability Report states that it only takes an average of 7.8 years to save a deposit in Western Australia—a stark difference from Sydney’s 9.1 years, Melbourne’s 10.8 years and Brisbane’s 8 years.

Moreover, the rising average annual income in the capital city, which was 10 per cent above the Australian average in the last financial year, allows more people to grow their asset portfolio.

According to the Real Estate Institute of Western Australia (REIWA), Western Australia is expected to avoid any declines in the near future, and Perth, in particular, will see an uptick in growth.

The rising consumer confidence levels and improving house affordability in the Perth property market are expected to translate into increased sales volumes in 2019.

“If weekly sales remain at current levels or better, Perth’s median house price could improve during the next 12 months,” REIWA president Damian Collins highlighted.

The vacancy rates and rental rate trending downwards are also positive indicators for the health of the property market, as well as the investment in new projects including lithium production and sale and minerals exploration.

Property value

Median house prices in Perth rose by 1.6 per cent up to $518,000 over November, REIWA found. This marks the second month in a row that the median house price in the WA capital has risen.

A greater proportion of transactions occurred above $1 million, ultimately contributing to the increase in Perth’s median house price over the month.

“Perth’s median house price has been fairly flat throughout 2018, so it’s pleasing to see two consecutive months of median price growth as we head into the New Year,” Mr Collins said.

Among top suburbs for sales in November are Willetton, Baldivis, Canning Vale, Duncraig and Ellenbrook, while the top suburbs for improving sales volumes were Quinns Rock, Willetton, Doubleview, Leeming and Wellard.

Most of Perth’s regions are more affordable than the overall median dwelling price, with Mandurah being the most affordable at $356,207 and Inner Perth being the most expensive at $787,190.

According to CoreLogic’s Cameron Kusher, as in the case of most states and territories, properties closest to the city centre typically have the highest prices.

“Although it is clichéd; location, location, location holds true and purchasers still pay a significant premium for well-located properties,” he said.

Supply and demand

While overall sales activity in the Perth metropolitan region remains subdued, a number of suburbs recorded notable improvements in sales during November.

According to Mr Collins, the average weekly sales across the capital city hover at around 500 per week throughout the year.

Perth’s vacancy rate also declined to 4.2 per cent—its lowest since early 2015—while rents remain steady and leasing activity rising significantly.

Still, there was a five per cent rise in listings, providing buyers with more options. “Sellers are returning to the market following the lull of the winter period and wanting to get in quick before the holiday season ramps up,” Mr Collins said.

Meanwhile, the average time on market for houses in Perth sits at 72 per cent, one of the highest numbers among major capital cities, preceded only by Darwin with 80 days.

According to Mr Kusher, the days on market figure for the city is trending higher and is up from 56 days over the same period in 2017. In regional WA, while days on market figure has also been trending higher over the recent months, it remains unchanged from a year ago.

Across the combined capital cities, 73.6 per cent of properties sold for less than their list price over the past three months, against 21.5 per cent that sold for more.

Lot sizes

According to the Western Australian government’s Department of Planning, Lands and Heritage, lot sizes in metropolitan Perth are currently at record lows, with an average of 367 square metres.

The north-western region of Perth has the largest median new lot size at 383 square metres, while the north-eastern region has the smallest at 337 square metres.

Capricorn Beach Estate’s Jarrod Rendell said that the north-west coastal region has become more popular due in part to its affordability and improved infrastructure. To maintain affordability, developers opt to build micro lots as small as 80 square metres across the inland suburbs of Perth.

“Developers try to reduce the selling prices of house and land packages by shrinking lot sizes,” Mr Rendell highlighted.

“The reality is that today, buyers are doing extensive research before buying a lot and the size of the lot, price per square metre and its location are now key factors in their decision making,” Atlantis Beach Estate’s Blaine Hall-Jones added.

Rental market

Of all the elements of its property market, Perth’s best quality over the year has been its rental market, according to Mr Collins.

The steady median rent of $350 per week, lively leasing activity and drops in vacancy rates contributed to the rental market’s success during the year, and come 2019, more progress is expected out of the capital city as population continues to grow and new building construction slows down.

Perth’s median rent price has remained at $350 per week for 19 consecutive months, marking the longest period of consistent rents in the WA capital since 2001.

The Rental Affordability Index report from National Shelter, Community Sector Banking, SGS Economics & Planning and the Brotherhood of St Laurence found Greater Perth to be most affordable in terms of rental affordability with an RAI of 144

Unlike sales listings, rental listings in the capital city remained stable during November. At below 7,000, the listings are 25 per cent lower compared to the figures recorded this time last year. This decline has been a key driver in the rental market’s recovery this year, according to Mr Collins.

“Available rental stock should continue to decline. This should see competition amongst tenants increase, putting further downward pressure on the vacancy rate, which recently dropped below four per cent for the first time in four years.”

“If listings decline and leasing volumes remain healthy, we should see the overall median rent price increase in 2019 for the first time since September 2014,” he said.

However, the positive predictions about the Perth rental market is largely dependent on several economic factors remaining consistent, such as negative gearing.

“In the short term, the improvements we’ve observed in the rental market could see investors returning to the market, but if changes to negative gearing are legislated, this will likely dampen investor activity and have a detrimental effect on the wider WA property market just as it is starting to find its feet,”

The top suburbs for leasing activity in November were Kardinya, Coolbellup, Bedford, Kelmscott and Harrisdale while the top suburbs for the largest number of leased properties were Perth, East Perth, Scarborough, South Perth and Baldivis.

New investment app

To improve the experience of Western Australian investors, home buyers and property professionals, REIWA powered the itrack property app, which offers real-time Western Australian real estate information from agents to buyers and sellers.

The app integrates with the REIWA, which allows for the buying and selling of property, and provides access to property already on the platform. Other functions include allowing the seller to see the number of visitors at open houses and visitors online, notifications about the number of email enquiries and unscheduled viewing time requests, and the option to contact and review agents,

Through the platform, buyers can also track or request specific property listings, the number of buyers who have sent an offer to a property, videos and floor plans of a property, details of settled and unsettled comparable properties in an area, sales evidence at suburb- and street-levels, further information from agents, and local amenities near a selected property.

Essentially, the new app provides ‘100 per cent transparent insight’ into property sales campaigns across the state.

According to REIWA’s Neville Pozzi, the CEO of the REIWA: “We are excited to be powering the itrack property app, which we’re confident will benefit all parties involved in a real estate transaction.”

“Buyers can track every movement of a property they are interested in, with factual and reliable notifications and updates sent to their phone as the property’s sales campaign progresses. For sellers, the itrack property app helps them to better gauge buyer interest levels.”

Strategy

As the property market fluctuates following the softening of Sydney and Melbourne after an unprecedented property boom, investors are advised to secure a steady stream of cash flow in order to mitigate risks.

According to Real Wealth Australia’s Helen Collier-Kogtevs, the golden standard across the property market is yields of at least 6 per cent. Most of the best cash flow opportunities can be found in and around capital cities.

“I see it as a fabulous time to for those that have already got their finances sorted, their budget sorted, they’ve got a savings plan … their credit files are clean, so they’re paying their bills on time, because that’s now becoming more important,” Ms Collier-Kogtevs said.

As Christmas approaches, investors are provided more opportunities to bag incredible bargains as property markets slow down.

To spruce up a property for sale this Christmas, Ms Collier-Kogtevs encouraged investors to consider doing upgrades on their property's outdoor features such as installing decorative plants and outdoor shade structures.

Ultimately, chasing yield will prove to be beneficial as the ‘era of property hotspots’ end, economist Andrew Wilson said.

He explained that the margin between gross yields and deposits is now the widest it’s ever been, but despite the changes in the cost of money, gross yields for property remains stable.

In other words, yields have been consistently immune to the unpredictable movements of the property market, particularly in recent times, when some of the biggest markets continue on to the softening phase.

“The highs and lows of capital growth have always been a hook to investors. The cycle always rises on the back of speculative investors wanting to get in on higher prices but if we take that roller coaster ride out of it, residential investment offers tremendous positives in the form of yields that are highly tax-advantaged,” the economist said.

At the end of the day, despite what doom-and-gloom headlines would like people to believe, the Australian property market is nowhere near any destabilising crash. In fact, opportunities are abundant for smart investors who know where to look and what to look for.

Right Property Group’s Victor Kumar said that, in a changing market, success will come down to being able to adjust and make decisions around the new landscape, keeping in mind the end goal that has inspired you to start the investment journey in the first place.

“We need to remember that this is part of the cycle. As we come to a peak, it does flatten out, but for those that have seen this before, or those who have invested over more than one property cycle—this is business as usual.”

“All you need to do is simply adjust your strategy to suit the current market phase that we've got. Realign what you’re buying and where you’re buying. These contractions will eventually lead us back to normality or the averages, so to speak, and you would know that if you have gone through several market cycles. This is history repeating itself—just dressed differently,” the property expert highlighted.

Hotspots

Over half a billion dollars in infrastructure investment is expected to benefit two popular suburbs in Perth—Two Rocks and Yanchep.

REIWA found in November that Two Rocks has emerged as the fourth-best Perth suburb for house price growth at 6.4 per cent to $360,000, while Yanchep ranks third with an increase of 5.5 per cent to $210,000 over the quarter. Both of these suburbs are expected to see further growth as new infrastructure is developed around the areas.

The upcoming infrastructure planning and the improving housing affordability in Two Rocks and Yanchep, as well as the improving state economy, increase consumer confidence and ultimately seal their spots as two of the most popular investment suburbs in the Western Australian capital.

According to Mr Rendell: “The areas of Yanchep and Two Rocks are proving very popular with buyers due to major new transport infrastructure in the area that will significantly cut commuting time to the city centre, such as the planned $220 million freeway extension to Romeo Road, the current duplication works on Marmion Avenue between Butler and Yanchep, and the committed $440 million new rail link to Yanchep,” Mr Rendell said.

“Other important new infrastructure that has been recently developed in the area includes the new Atlantis Beach Baptist College in Two Rocks, the recently opened Yanchep Secondary College, Yanchep District playing fields, as well as the new Yanchep Surf Club.

“In addition, a wide range of other new facilities are expected to open in the coming months covering child and health care.”

Apart from investors, families and other home buyers are also attracted to the suburbs due to the relaxed coastal lifestyle, supported by improving infrastructure.

“There is the strong potential for current property buyers in the Two Rocks/Yanchep area to achieve strong levels of capital growth moving forward because property prices in this prime coastal strip are still well below average Perth property prices,” he said.

“Once the new rail and road links are completed in a few years time, we should see strong and sustained rises in property values in the Two Rocks and Yanchep areas, similar to what occurred in areas like Butler and Clarkson when train stations were completed in those areas,” Mr Rendell said.

Aside from Two Rocks and Yanchep, more than 50 suburbs in Perth have also been bucking the downward trend in most capital cities with positive growth, including Swan View, East Cannington, Como, Hillarys and Cottesloe for houses and Maylands, Midland, Tuart Hill, Fremantle and Claremont for units.

According to Mr Collins: “While the worst of the market downturn appears to be behind us, the results of the September 2018 quarter reveal conditions that are favourable for buyers and investors. It’s not necessarily a strong market, but it’s certainly not as bad as the media has been portraying it to be.”

Based on The Smart Property Investment’s Best Suburbs data, among the top performing suburbs in Western Australia in terms of annual median growth are: