Property market update: Perth, January 2020

According to CoreLogic, dwelling values in Perth posted a minimal increase of 0.1 per cent over the month. A 0.4 per cent gain in housing values was also recorded in the last quarter, marking the first quarterly increase since May 2018.

Property investors in Western Australia have experienced several ups and downs over the years. From 2000 to 2014, Perth has seen sporadic growth as property prices tripled. However, after the said period, the capital city saw a 30 per cent slump in growth and a significant amount on cash flow.

Most experts believe that 2020 is definitely going to be better than 2019 in terms of movements in the property market, primarily due to international relations and government policies.

Pure Property Investment’s Paul Glossop said the Perth market is transforming. Mr Glossop said that several factors are now coming into play that could bring some changes to Perth’s property market.

During the third month of 2019, Perth recorded a 5 percent growth in the rental market. Data released by Corelogic in November 2019 showed the capital city recording its first month of growth in a very long time in capital gains perspective.

Mr Glossop added that big infrastructure projects (including transportation and healthcare) and other major developments closer to the CBD will likely result in jobs creation and unemployment declining and create a new wave of demand for properties in the West Australian capital.

Not only experts are optimistic for Perth at the beginning of this new decade. Investors have a positive outlook regarding the capital city’s property market as well.

According to a survey by Momentum Wealth, property investors have highest interest in Perth and Brisbane, with 37 per cent and 26 per cent respectively naming the capital cities as the prime locations to invest in the next 12 months.

Perth is also now seen as the capital city market with the best long-term prospects, with 61 per cent of respondents ranking the Western Australia capital as the city with the biggest three-year growth potential.

Team leader of Momentum Wealth’s buyer’s agents Emma Everett said several factors including “early improvements across Perth’s rental and capital markets, rising activity in the mining sector, increased infrastructure spending and early signs of accelerated population growth” are giving strong indicators of the future performance of Perth’s property market.

Property values

For Perth property owners, the latest monthly housing value data bears positive news.

Housing values climbed in January across every capital city in the country, according to Corelogic. The CoreLogic Hedonic Home Value Index increased by 0.9 percent over the month, with Sydney and Melbourne posting the biggest gains at 1.1 per cent and 1.2 per cent respectively.

In January, property values in Hobart saw growth of 0.9 percent, Brisbane gained by 0.5 percent, Canberra rose by 0.3 percent and Adelaide increased by 0.2 percent. Both Perth and Darwin posted a monthly gain of 0.1 percent.

Mr Lawless noted that while there is a an “apparent recovery across every GCCSA (Greater Capital City Statistical Area) of Australia, the speed of growth has lost some momentum over recent months.”

The national dwelling index slumped from a monthly peak of 1.7 percent reached in November to 0.9 per cent over the month. He added that the seasonal effects had an impact on the growth rate and weighed on the January reading.

The housing values have rebounded 6.7 percent since hitting its lowest monthly rate in June 2019, but the national index continues to be 2.2 percent below the October 2017 high, Mr Lawless said.

Mr Lawless said: “With housing values rising at the quarterly pace of 3.7 per cent, we are likely to see a nominal recovery in the national home value measure within the next two-to-three months.”

Despite the anticipated slowdown, the rise of values across every capital city and rest-of-state region, apart from regional South Australia (where values were steady over the month) demonstrates a wider recovery trend, according to Mr Lawless.

Out of the eight capital cities, four are showing home values at record highs, namely Brisbane, Adelaide, Hobart and Canberra. However, Mr Lawless noted that the market still has some way to go before it fully recovers from lows.

In Perth, prices are down 5.7 percent over the last 12 months and 21.3 percent down from a peak recorded 5.5 years ago.

Supply and demand

Corelogic’s latest quarterly auction update showed a “significant” rise in clearance and auction volumes in the capital cities.

The combined capital city clearance rate rose to 70.3 per cent from 26,923 auctions over the quarter. The figure is significantly higher from the 43.5 per cent clearance rate from 25,894 auctions in the prior quarter.

The data also showed that all major city capitals posted higher clearance rates compared to the same period in the previous year.

Sydney posted the highest clearance rate with 74.9 per cent from 9,546 auctions. Melbourne followed with 72.8 per cent from 12,870 auctions, Canberra with 68 per cent from 937 auctions, Tasmania with 62.2 per cent from 53 auctions, Adelaide with 57.4 per cent from 1,385 auctions, Brisbane with 45 per cent from 1,615 auctions and Perth with 39.5 per cent from 517 auctions.

Eliza Owen, the head of CoreLogic residential research, said the surge in auction corresponds with the rebound in prices.

Growth drivers

Upcoming infrastructures’ upgrades and new projects are seen to drive growth in the Perth property market.

The population growth, as well as the improved accessibility and additional amenities these impending projects and infrastructure can bring to the market, are seen to power demand from buyers and renters.

In a statement, the government of Western Australia stated that approximately 900 residential lots are set to be developed in the coastal suburb of Port Kennedy from crown land over the next decade.

The project is seen to create 400 local jobs and $15 million in public works through development of the lots and other community infrastructure. The development will also entail the creation of a new main street and town centre in Port Kennedy.

Lands Minister Ben Wyatt said the project “will not only revive the coastal landscape of Port Kennedy, but will create much-needed community infrastructure and local jobs for the area”.

Hotspots

The Perth property market is set to witness further tightening in stocks due to low levels of supply coming on stream this 2020.

Momentum Wealth’s research adviser Shaun Strickland said that in order to leverage market improvements, it is critical to select strategic properties.

“Buyers searching for suburbs with strong growth prospects should look towards areas that are tightly held, where there are few property transactions occurring due to limited supply coming on stream,” Mr Strickland advised.

He recommended looking into properties that are within popular school zones, those in the vicinity of upcoming infrastructure upgrades or establishment and “aspirational suburbs.” 

Areas surrounding school zones are more likely to benefit from a limited supply.

Mr Strickland named suburbs like Bateman and Carine, which recorded annual house price increases of 2.4 percent and 5.3 per cent, respectively, as prime examples of this. These suburbs generally experience high levels of demand from owner-occupiers, which in turn offers greater stability during market downturns.

When choosing where to buy, Mr Shaun also recommended considering the impact of impending infrastructure upgrades.

According to him, infrastructure projects, such as new transport links, are opportunities for capital growth due to the increased accessibility and amenity they bring to a suburb which can boost demand.

A number of infrastructure projects will be implemented in the West Australian capital over the next five years as part of the local government’s METRONET Project. The project aims to establish 18 new stations across the Perth metropolitan regions.

The property expert noted that previously overlooked suburbs, including Forrestfield, are set to benefit from the METRONET project during the first stages of its development.

Investors are also encouraged to look into “bridesmaid suburbs” or “aspirational suburbs”, areas that could be next in line to areas that are already thriving.

Mr Shaun said that suburbs like Manning have seen this trend. The suburb experienced high levels of demand after significant price increases in areas like Como and South Perth.

However, he reminded investors that when looking for opportunities in these “aspirational suburbs” investors must ensure that the areas still have the right growth fundamentals in place, as proximity to growth areas does not necessarily guarantee growth in the future.