Amidst the decline of dwelling values and the housing shortage, can property investors still find wealth-creation opportunities in Western Australia’s Perth?
National dwelling values have declined in May by 0.1 per cent—the eight consecutive month-on-month fall since the national market peaked in September 2018.
During the week ending 27 May, Perth saw home values decline by 0.1 per cent, according to the latest CoreLogic Property Market Indicator.
Annually, the capital city’s property market experienced a 1.8 per cent drop in dwelling values.
According to CoreLogic’s Tim Lawless: “The negative headline growth rate is a symptom of weakening housing conditions across the capital cities, led by Melbourne and Sydney where, previously, capital gains were national leading.”
“Regional markets are outperforming the capitals, affordable housing options are showing stronger conditions and the previously top performing regions are now amongst the weakest,” he added.
Across Australia, more people have been struggling to pay rent, according to the Rental Affordability Index by the National National Shelter, Community Sector Banking and SGS Economics & Planning in May.
However, Perth remains among the areas with the most affordable rents, requiring only 21 per cent of the total household income.
The capital city is only preceded by Brisbane, Melbourne and the entire Australia Capital Territory, which require 25 per cent, 24 per cent and 23 per cent of the household income, respectively.
The affordability can further improve if the government establishes a national housing plan, Community Sector Banking’s Andrew Cairns said.
While listings in all capital cities fell in May, Perth was one of the exceptions as its number of listings rose by 4.1 per cent.
On average, houses in Perth remains in the market for 76 days, making it one of the worst performers in terms of median time in the market along with Brisbane and Darwin, where houses stay in the market for 62 and 77 days, respectively.
The latest auction volumes also saw the capital city as the worst performer, with a clearance rate of 26.7 per cent out of 24 homes.
Meanwhile, vendor discounting across capital cities sit between 4.7 per cent and 7.6 per cent for houses and between 4.4 per cent and 6.3 per cent for units. Perth was a high-end exception for houses and units, with vendor discounting at 7.9 per cent for both.
Despite the low clearance rate, some experts foresee a housing undersupply in Perth in the next two years following a decline in building approvals.
Building approvals in the Western Australian capital have reached its lowest point since 2001. This market trend is being attributed to weakening consumer confidence and tighter lending restrictions.
Last March, only 1,095 dwellings were given building approvals in Western Australia—a stark difference to 3,258 approvals given in July 2014.
This undersupply of new homes is expected to result to property prices hike between now and 2020, according to Professionals Real Estate Grou’s Shane Kempton.
In fact, the median weekly rent in Perth has already risen for the first time in five years last March.
“The rental market is generally a forward indicator of the overall property market. When rents start to rise, it is a sign that housing supply is beginning to tighten,” Mr Kempton highlighted.
According to him, the lack of supply will be more apparent once the economy of Western Australia gains traction in the coming years, especially as new infrastructure is set to be built across the state.
Investors are advised to purchase properties now before the supply of homes tighten and house prices start to rise over the next two years.
Among the factors that are expected to boost Perth’s economy and improve the state of its property market are:
The lithium refinery being built in Kwinana is predicted to boost the economy in the capital city and ultimately transform its property market as it creates hundreds of jobs in and around the area, Investwise’s Daniel McQuillan said.
Consumer confidence crashed in Perth and other WA areas after the boom brought about by the massive investment in iron ore came to an end.
With the possibility of the state becoming the global supplier of lithium, Mr McQuillan expects a surge in consumer sentiment in the coming years.
There are already $2 billion-worth of lithium projects in the pipeline and more than 1,000 people employed in the sector, which is likely to double or triple in the near future.
This project in Kwinana will be supplemented by the $400 million-Tianqi processing plant, which will see lithium concentrate being turned into lithium hydroxide.
According to Mr McQuillan: “This downstream processing will create thousands of new sustainable jobs in Western Australia which will have a major positive impact on the local property market moving forward.”
“Lithium could have a similar impact on our economy during the 21st century as the discovery of oil. Western Australia has still a relatively small population and [a] lithium-driven economic boom will result in a huge demand for property as people move to the state to secure a better financial future for themselves,” he added.
The perfect time to purchase properties in Perth would be right now, he said, as the prices of real estate assets are currently at rock bottom.
Real estate values are expected to rise significantly as the effects of the lithium boom kick in.
Aside from private investments on infrastructure, government-subsidised projects are also expected to roll out across Australian states this year.
A $75 billion investment in transport infrastructure over the decade aims to improve accessibility between properties.
Of the said amount, $1.5 billion will go to a Northern Australia Package for Queensland, the Northern Territory and Western Australia.
Meanwhile, $944 million will be dedicated to tackling congestion in Perth.
The other $24.5 billion will be used to build new major transport projects and incentives across the country, while $3.5 billion will be funneled into upgrading existing roadways and improving access for services, markets and employment opportunities.
For investors who are willing to take the risk and invest in Perth while property prices are deemed ‘at rock bottom’, some of the capital city’s most affordable offerings can be found in the unit markets near the central business district.
The closest affordable market to the CBD is the suburb of Perth, where median unit value sits at $419,148.
Other affordable unit markets can be found along the coast or the Swan River.
For those who want to invest in houses, Glendalough, at 5.1 kilometres away from the CBD, boasts a median house value of $422,718.
More affordable house markets can be found within 7.3 kilometres of Perth CBD.
Overall, experts believe that Perth just doesn’t have ‘good investment ingredients’ at the moment.
Propertyology’s Simon Pressley advised against investing in the capital city as it is yet to recuperate from hitting the bottom in 2017.
He said: “I think a lot of people confuse bottom with bouncing, but markets aren't tennis balls. They can hit a bottom and bounce but they'll do that for a reason. There's plenty of markets that hit a bottom and stay flat for a long period of time.”
“Perth's economy has stabilised but we don't see it expanding,” the property professional highlighted.
Until the effects of the growing lithium industry become apparent, the property markets in Perth may remain stagnant and see no significant growth for a while.
The best way to fasttrack the recovery of the capital city, Mr Pressley believes that it needs to diversify its economy.
“Tourism is Perth's opportunity. It really can do something there. It's a beautiful city, but it doesn't seem to have a strategy in place,” according to him.
For more specific data and information on the Perth property market, visit Smart Property Investment's Best Suburbs page.