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With Perth and Brisbane’s property markets touted to outperform in 2021, Momentum Wealth’s property experts look at the key underlying differences between the two investment locations.
Touted by industry experts and economists as the two capital city markets expected to outperform in 2021, Sydney and Melbourne’s rental markets slowed during the COVID-19 pandemic, investors in these markets are beginning to explore cities outside of their home market for their next investment. and Brisbane continue to draw the attention of property investors. As
Both offering sunny climates, a strong mining industry and relative affordability, Perth and Brisbane - on face value at least – both appear to offer investors similar opportunities.
However, if you delve a little deeper and explore these two capital city markets in detail, you’ll begin to find differences that may impact your investment plans.
Median house prices aren’t always what they seem
On paper, both the Perth and Brisbane markets offer investors similar levels of affordability, especially when compared to property prices in Sydney and Melbourne. Data from CoreLogic’s January Hedonic Home Value Index shows Perth’s home value sits at $471,310,with Brisbane coming in slightly higher at $521,686.Despite offering similar levels of affordability, the composition of the Perth and Brisbane markets presents buyers with different options when they are looking to invest.
Brisbane’s metropolitan market is comprised of an affluent and expensive inner ring that then gives way to a more affordable market as you move away from the CBD. Traditionally, suburbs closer to the CBD are well established and face limited oncoming supply – a critical factor for capital growth. For investors, this means properties within 15km of the Brisbane CBD will likely be priced well above the median price, in the range of $650,000 - $700,000. In practice, this means that the Brisbane market – at least for buyers targeting those inner-city locations –may not be as affordable as it first appears. Potential investors looking to enter the Brisbane market will be faced with the decision of paying more for a property in the inner ring, buying a villa or townhouse with less land content, or moving further from the CBD to outlying suburbs.
So, what about Perth?
Compared to the Brisbane market, Perth’s wealthy suburbs are more distributed - stretching along the Swan River and up the coast north of Perth. Although property prices are already rising in Perth, investors can still find affordable investment-grade properties within 15km of the CBD. The affordability and composition of the Perth market gives investors the opportunity to benefit from houses with a greater land content - creating opportunity from both a capital growth and development perspective. Given recent data highlighting the resilience that houses can offer compared with units, the cheaper house prices in the Perth market become even more appealing.
Development opportunities differ
The majority of the Brisbane metropolitan area falls under the control of the Brisbane City Council, a ‘mega-council’ that covers 1,338sqm, making development applications a fairly uniform process. On the other hand, Perth’s metropolitan region is made up of 38 distinct Local Government Areas, with each council having their own planning and development regulations.
Investors looking to enter the Perth market, especially those from interstate, need to be aware of the regulatory differences that exist between local councils when scoping the feasibility of an upcoming project. While these town planning schemes add some complexity to the development process, they also bring about opportunity for those able to access this local area knowledge (either through their own experience of this market or through a local advisor).As an example, The City of Joondalup made changes allowing certain blocks to have a 9-metre frontage,which in turn allowed for side-by-side duplexes instead of front and rear. This development style increases buyer appeal,with our team at Momentum Wealth working with several clients to leverage these changes to maximise their development outcomes.
Market conditions aligning
The current market conditions in Perth and Brisbane are similar as both are in the recovery stage of the property cycle and predicted to experience strong growth over the coming years. ANZ predicts the Perth market will grow 12% this year while also forecasting 9.5% growth for Brisbane. Driven by increased demand thanks to residents returning home from interstate and overseas amid the COVID-19 pandemic, as well as increasing investor appetite, Perth and Brisbane have been cushioned from the softening experienced by other markets. Accompanying this increased demand is an undersupply of sales stock in both markets, creating conditions conducive to the price growth predicted by ANZ.
The similarities between the two cities extends into the rental space as both markets are experiencing a rental shortage. Data from SQM Research highlights this as Brisbane’s vacancy rate has fallen to 1.7% while Perth is experiencing record lows at 0.8%.With growing competition placing upwards pressure on rental prices, CoreLogic’s Hedonic Home Value Index highlighted that rents for Perth houses grew 11.7% in the 12-months to January 2021, while Brisbane experienced lower growth of 3.4%. It was a similar story for change in unit rents with Perth experiencing 8.7% growth compared to a contraction of -0.3% for Brisbane.
Backed by expert predictions of nation-leading price growth over the coming years, Perth and Brisbane are high-up on the agenda for investors looking to capitalise on a rising market. However, there are key differences across the two markets that can impact the individual opportunities and growth potential on offer to investors.
Momentum Wealth is a multi-award-winning property investment consultancy based in Western Australia.
To speak to our team in more detail about the differences in the Perth and Brisbane markets, or for more information on the investment opportunities we’re seeing across the Perth market, please feel free to get in touch or request a consultation with our property experts.