Property market update: Perth, January 2019

According to REIWA president Damian Collins, while nobody expects rapid growth in the Perth property market this year, the capital city will definitely see significant improvements in the coming months.

“REIWA’s outlook suggests sales volumes could start to increase this year. With house prices in Perth remaining relatively affordable and consumer confidence levels on the incline, this could translate into increased activity in 2019.”

“While buyers continue to benefit from improved affordability in the Perth market, sellers should take comfort in the fact that prices have remained relatively stable over the last 12 months,” Mr Collins said.

Still, investors are strongly encouraged to take caution when making investment decisions as the Perth property market faces the challenges of a tight credit environment on its way to full recovery.

Property values

In the week ending 3 February, Perth’s property values declined by 0.4 per cent, followed by Sydney with 0.3 per cent, Melbourne with 0.2 per cent and Brisbane with 0.1 per cent, while Adelaide remained stable.

Over the month, the Western Australian capital also saw a decline in home values, dropping by 1.1 per cent to $441,920.

Canberra stood as the only capital city to experience a rise in values during the first month of 2019.

Domain’s Dr Nicola Powell said: “House and unit prices continue to moderate. House prices are now 11 per cent below the peak price achieved almost five years ago.”

Like most capital city markets, Perth continues to be a buyer’s market.

“Buyers are now in a position where they can negotiate harder, take their time in making a purchase decision and be selective in finding a home that is right for their budget and lifestyle,” according to CoreLogic’s Tim Lawless.

As the rental market gets tighter and population growth improves, Dr Powell expects Perth to reach the bottom of the market cycle soon, to be followed by the beginning of a rising trend.

Supply and demand

Listings fell in Perth and other capital cities except Darwin and Hobart, which experienced rises of 3.5 per cent and 4.9 per cent, respectively.

Over the quarter, Perth recorded the total number of listings at 14,722 properties.

Dwelling approvals, on the other hand, rose by 1.1 per cent across Western Australia.

Meanwhile, average time on market rose across every capital city, with Hobart houses and units recording the fastest time on market at 46 and 34 day, respectively, and Perth houses and units recording the slowest at 86 and 99 days, respectively.

Perth was also the high-end exception in vendor discounting for units at 10.5 per cent, while Sydney and Melbourne were the high-end exception for houses at 8.6 per cent.

Sales and clearance rates

Compared to other market indicators, buying activity in Perth remained generally positive as it increased by 6.4 per cent to 1,374 properties, according to data from REIWA.

A total of 6,417 properties were sold over the quarter, with Parkwood, Darlington, South Fremantle, Helena Valley and Bentley emerging as the overall top performers, and Baldivis, Canning Vale, Moreley, Gosnells and Dianella recording the highest sales volume.

Overall auction activity also saw a considerable rise, with Perth’s South Perth recording the highest level of auctions over the quarter.

However, auction clearance rates followed a declining trend in the Western Australian capital as well as most capital cities.

The largest decline in clearance rates was in Canberra, which dropped 13.4 per cent to 46.9 per cent, followed by Adelaide which declined by 12.2 per cent to 48.5 per cent, Perth which declined by 11.9 per cent to 25 per cent and Melbourne which declined by 11.2 per cent to 45.4 per cent.

Rental market

Rental conditions have generally outperformed housing values over the past 12 months to January 2019, with national rents up by 0.4 per cent and gross rental yields rising to 4.01 per cent.

Over the month, Perth saw a rise of 46 per cent in leased rental properties to a total of 5,197 rental properties, marking a strong beginning to 2019 for the Western Australian capital, according to REIWA.

Median unit prices, listing volumes and leasing activity are also among the market indicators that saw significant improvement.

Leasing activity improved in 119 suburbs across Perth, with the biggest improvement recorded in Claremont, Mosman Park, East Fremantle, Westminster and Nedlands, as well as Mount Lawley, Ballajura, Forrestfield, Joondanna and Yanchep.

Meanwhile, median house rents were stable at $350 per week, while median unit rents increased by $5 to $330 per week.

A total of 58 suburbs saw median rents rise, including Bullsbrook, Bull Creek, Attadale, Applecross and Greenfields.

REIWA’s Lisa Joyce said: “It’s pleasing to see more confirmation of a recovery in the January findings. Leasing volumes recorded the most notable improvement, enjoying a welcome rebound in tenant activity during the month – a trend we commonly observe this time of year.”

Rental listings, on the other hand, saw a two per cent monthly decline and 27 per cent annual decline to 6,732 properties.

“With fewer listings and increased activity levels, competition amongst Perth tenants is rapidly increasing. If the rental market continues on its current upward trajectory, median rents should start to rise in the coming months, which will help entice investors back to the market,” Ms Joyce highlighted.

REIWA also found that the vacancy rate across the Perth rental market—which declined to 2.8 per cent—has fallen to its lowest point for the past five years.

According to Mr Collins: “The rapid improvement we’ve observed in the last 18 months is impressive, especially considering the vacancy rate peaked at 7.3 per cent in June 2017 – the highest it’s ever been,” Mr Collins said.

“Now that the vacancy rate is below three per cent, we can safely say the market is in a recovery phase with landlords now the beneficiary of the current rental environment.”

With more jobs being created in the resources sector, including the burgeoning lithium market, investors can expect a further increase in rental demand over the year.

According to Momentum Wealth’s Shaun Strickland, while rental prices may not return to peak levels in 2019, the high demand is likely to increase the overall rental rates in the capital city over the year and provide a possibility for significant growth in the medium-term.

Strategy

While Perth has consistently been on a path towards recovery, it joins other capital city markets in facing the challenges brought by the tighter credit environment—a result of regulatory interventions on mortgage lending as well as the banking royal commission.

Conservative lending practices are likely to remain despite the conclusion of the banking royal commission last year and the removal of the interest-only lending cap by the Australian Prudential Regulation Authority (APRA), according to experts.

For one, serviceability assessment will continue to focus on a greater scrutiny on the borrower’s living expenses.

As such, homebuyers are advised to stick to their budget budget in order to maintain good cash flow and ultimately establish a strong borrowing power.

Mortgage broker Ross LeQuesne said: “As a property investor, your personal monthly balance sheet needs to look pretty good.”

“Look at the basic things like: What are you spending around? What are some of the areas that you can potentially pull back in? What are some of the credit card limits that you're not using? What's some of the higher interest personal debt like car loans and credit cards that you can pay off and cancel? What are some of the practical things that you can do to increase your serviceability yourself? What's in your control?”

Between the federal elections and the results of the banking royal commission, the lending environment is expected to see more changes in 2019.

Apart from taking care of their finances, investors are also encouraged to engage property professionals, where appropriate, in order to understand market movements and ultimately make the most out of the Perth property market.

Mr Le Quesne said: “Quite often, like in anything, it's not what you know, it's who you know. It's a changing market now that, often, it's better to have a buyer's agent because you need to have a read on the market and a true understanding of how it might fluctuate.”

“If you're not using a buyer's agent, you're probably competing against a lot more well-educated, sophisticated, professional buyers.”

Hotspots

Areas across Perth surrounding infrastructure and resource-related projects are expected to see significant growth this year, according to the results of the Perth Private Spending Report by Momentum Wealth’s research division.

Among the major projects in the capital city is the redevelopment of Westfield Carousel, over $3 billion in upgrades to shopping centres, 11 major hotels, multiple major apartment developments and $108 billion in projects related to the resource sector.

Along with jobs growth, the rising investment in shopping centres and the renewed interest in the resources sector, development projects stand as signs that point to the potential for a boon for Perth’s residential property market, Mr Strickland said.

“Whilst the construction and operation of these projects will generate thousands of new employment opportunities and help stimulate Perth’s local economy, the developments will also play a key role in enhancing local amenity, which will in turn help drive demand and property prices in the surrounding regions.”

“These projects also hold fundamental importance for the state due to the flow-on effect this has on the wider economy, with wage growth in turn leading to increased levels of consumer spending,” Mr Strickland said.

“The influx of FIFO workers that accompanies these projects can also be a key trigger for the growth of Perth’s property market, with the increase in population in turn leading to a rise in demand for housing and rentals,” according to him.

Mr Strickland advised investors to act soon and select properties near local activity centres and other amenities that provide ‘tangible benefits to nearby communities’.

“Investors who act sooner and identify these markets before buyer competition picks up will be a better position to benefit from ensuing growth, but selecting the right property with the right fundamentals in place will remain paramount,”

While Madora Bay, Brabham, Mount Pleasant, Claremont, West Leederville, Kensington, South Perth, Alfred Cove and Shelley emerged as the top performers of 2018 in the Perth property market, the National Australia Bank (NAB) identified Armadale and Scarborough as the Western Australian suburbs that are likely to enjoy above average growth over 2019.

Moving forward, Propertyology’s Simon Pressley said that Perth could be the best performing capital city in the next two to three years.

Along with Perth, Mr Pressley identified Albany, Busselton, Margaret River, Bunbury, Geraldton and the Pilbara as investment areas to watch this year.