Perth Property: Why buyers are turning west

Perth attracted national attention in early 2020, with consecutive months of price growth signalling the progression of recovery for the city’s residential property market. Now, thanks to WA’s effective response to the COVID-19 pandemic, tightening stock levels and rebounding buyer demand, the market looks set to continue this momentum.

Experts predict Perth is on the rise

National property experts are increasingly taking note of Perth’s property market for reasons ranging from its affordability to its low downside risk, with many forecasting strong growth for the State capital in the years ahead.

While revising his initial short-term projections, Westpac chief economist, Bill Evans, predicts a surge in national property prices from June 2021, with Perth at the forefront of these gains alongside Brisbane with a projected increase of 18 percent by 2023.

Experienced property researcher and commentator, Terry Ryder, shares the beliefs of Mr Evans and predicts strong performance from the Perth market in the coming years.

“Perth has become the most affordable of the Australian capital cities so it’s a great time to be buying there as a first-home buyer and as an investor”, he said.

Economist, Jason Murphy believes the affordability of the Perth market could be a key motivator for prospective buyers, offering greater value for money when compared with the Sydney and Melbourne markets.

“The downside risk of a Perth house purchase has to be quite low, and that has to be attractive in our current era where nobody is sure what will happen next”, Mr Murphy said.

So, what are the key indicators supporting these predictions?

Tightening stock levels

Perth’s property market had been recording tightening stock levels for some time in the lead up to 2020, further accentuated by a significant lowering in building approvals over recent years. While certainly contributing to the resilience of Perth’s property market during the COVID-19 period, the return of tenant and buyer activity following the easing of lockdown restrictions has seen both rental and sales supply continue its downward trajectory in WA. Combined residential stock levels now sit at their lowest in over seven years, with data from the Real Institute of Western Australia (REIWA) highlighting a drop of over 40% annually from September 2019. 

Reducing rental stock has already had crucial flow-on effects for the broader Perth rental market in recent months, with average rental vacancy rates reaching a 12-year low at just 1.3% in late 2020. These tightening conditions have translated into increased competition on-the-ground, with Momentum Wealth’s property managers reporting higher attendance at home opens, increased competition from tenants, and rising rents for new tenancies as prospective renters compete for properties. Despite temporary COVID-19 legislation, one in three suburbs in Greater Perth recorded rental growth in September 2020 according to REIWA - a trend which is expected to flow through to the broader market once this legislation is lifted in March 2021.

Rental yields

Combined with Perth’s relative affordability, this growth in tenant competition has supported increasingly attractive rental returns across Perth’s residential market, with investment properties in Perth outperforming those in Sydney and Melbourne by a considerable margin for gross rental yields (4.3% for houses in Perth, compared to 2.7% and 2.9% in Sydney and Melbourne respectively according to CoreLogic in September). On the ground, Momentum Wealth’s buyer’s agents are seeing some great opportunities to purchase properties at higher yields and reduced holding costs in areas that also offer strong growth potential.

Affordability

The June Housing Affordability Report from the Real Estate Institute of Australia showed Perth was the cheapest State across Australia to purchase property, with only 24.0% of family income required to meet loan repayments in WA compared to 42.3% in Sydney and 36.8% in Victoria. These conditions are providing a unique opportunity for buyers to invest at a lower price point, often with the benefit of closer proximity to the CBD and larger land content than they would have access to in other markets across Australia in the same price segment.

Price growth – areas already outperforming

In September 2020, lowering stock levels combined with a sustained rise in buyer demand (tracking on average 40% higher annually) saw CoreLogic’s Home Value Index record headline price growth for the Perth market.

While these lagging indicators are now emerging across the broader market, improving conditions combined with suburb-specific demand and supply factors have already seen a number of market segments outperform headline growth levels. This has been seen particularly in established suburbs where tightening stock levels are being further compounded by limited oncoming supply, and where high online property views are also indicating strong demand from buyers.

Window of opportunity for investors

Perth’s residential property market currently offers unique opportunities for investors, both from a cash flow and price growth perspective.

The combination of the market’s affordability, improving rental conditions and early growth indicators are providing a potentially time-limited and lucrative window for buyers with the right property selection criteria to enter the market at a reasonable price point, while also benefiting from a strong rental yield and positioning themselves to leverage future market improvements.

However, with these conditions already translating into headline growth and stock continuing to tighten in high-demand suburbs, there’s certainly a compelling reason to think about turning west sooner rather than later. 

Momentum Wealth is a multi-award winning, WA-based property investment consultancy dedicated to assisting buyers in the financing, acquisition and management of their investment property portfolio. To speak to our Perth buyer’s agents about opportunities in the Perth market, or to find out how we could help with your property needs, contact us here.

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