Population growth to underpin Perth’s property prices: REIWA

Resilience has defined Perth’s property market in the face of the rate hikes, but how will the Western Australian capital perform over the remainder of 2023?

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Perth house prices are still on track to achieve “low to moderate growth” in 2023, while unit prices will “remain relatively stable,” according to the Real Estate Institute of Western Australia’s 2023 property market quarterly update.

Data showed average house prices in the city are up 1.5 per cent to $552,000 since the beginning of 2022. However, median unit values have declined 1.5 per cent to $399,000 during the same period.

REIWA chief executive Cath Hart said resilience has been the theme for the Perth property market so far this year, with house prices continuing to grow in the face of the Reserve Bank of Australia’s record rate rise cycle.

Since May 2022, the central bank has raised the country’s official cash rate from a record low of 0.25 per cent to currently stand at 4.1 per cent.

“Demand for homes is strong and is supported by population growth,” Ms Hart commented.

This trend is expected to continue, with the executive highlighting the state recording a 2.3 per cent increase in its population over the year to December 2022 and forecast to grow another 1.8 per cent in 2023-24.

But Ms Hart acknowledged that building completions and interest rates are “wild cards” for how the rest of the year will pan out for the market.

“There are over 20,000 homes under construction at the moment and as they are completed we will see people move out of their current residence and into a new home, freeing up some supply in the sales and rental markets.

This is already starting to be seen in the rental market,” Ms Hart said.

Despite this, the executive believes the uptick in completed dwellings “won’t have a significant negative impact on prices,” noting population growth will offset the increase in supply.

“In addition, these homes will not all be completed at the same time, so the market will not be flooded by more properties to sell or rent,” she explained.

And although Perth’s market has cut a resilient figure amidst interest rate changes, Ms Hart said the previous rate hikes “still had some impact.”

“We have certainly seen a decrease in sales activity in the sub-$500,000 price bracket. This is the segment of the market where buyers’ and home owners’ budgets are more sensitive to the increase in interest rates and cost of living,” she said. 

She noted property buyers have become more “budget-conscious” thanks to the rate hikes, highlighting prospective buyers will become more mindful of their financial capacity if additional rate rises reduce their borrowing power further.

“And while sales activity has decreased at the lower end of the market, it is the cheaper suburbs that are recording the quickest selling times, suggesting affordability is important to buyers who are acting quickly when they spot an opportunity offering good value,” she added.

During the second quarter of the year, REIWA’s data showed properties continued to sell quickly, with June setting a new record median of 10 days on market.

Over the month, the number of properties available for sale in Perth fell to 5,384 – a 13-year low. The figures are also down 4.4 per cent from May, and 37.5 per cent lower than 12 months ago.

Ms Hart drew attention to a consistent pattern over the past few months, in which property sales have outnumbered the entry of new properties into the market.

This started to change towards the end of June, with new listings increasing slightly and sales falling below new listings.

And although more properties are expected to come to the market in the lead up to spring, Ms Hart acknowledged “it will be some time” before Perth sees a return to a “traditional balanced market.”

In its quarterly update, REIWA also forecasts rents to “rise further,” with Ms Hart adding the market would remain challenging for tenants.

“The vacancy rate has been 0.7 per cent since the beginning of the year, and property managers are still seeing queues at home opens and receiving multiple applications,” she stated.

Ms Hart forecasts demand will maintain pressure on prices, causing median rents to increase over the remainder of the year as 12-month fixed-term leases come up for renewal at current values.

But the executive said it’s not all bad news for renters, with the screws on the rental market showing signs of easing.

Since the first week of June, REIWA’s data showed the number of available properties for rent has consistently remained above 2,000.

“And while the number of listings at the end of June was still about 6 per cent lower than in June 2022, it was a big improvement on the past few months when it was about 20 per cent lower year-on-year,” she said.

Ms Hart noted building completions are playing a role in the increasing listings, noting more tenants are now moving out into their long-awaited new homes, and this is freeing up some supply.

“We are also seeing an increase in requests for additional occupants as tenants seek to split the rising rent costs as well as address the difficulty of finding a property in current tight conditions. This is also easing some of the pressure on the market,” she added.

Perceiving the strong interest from eastern state investors who “see value in Perth prices and strong rental yields”, Ms Hart said supply is seen to rise in the coming months.

“If current trends continue, we expect to see a slight easing in the vacancy rate in the coming months,” she said.

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