Perth is believed to be set for a turnaround after prices have rebound strongly over the past months. However, experts say that the WA capital still lacks significant growth drivers that will push it to the top. How will property investors in the capital city fare for the rest of the year?
During the week ending 29 July, home values in Perth fell by 0.3 per cent. Annually, the house prices declined by 1.0 per cent while unit prices increased by 3.4 per cent, pushing the capital to a 1.7 per cent year-on-year rise for the first time in over three years.
Currently, the asking price for houses in the capital city sits at an average of $675,000 while asking prices for units is at $397,100.
According to REIWA’s Hayden Groves: “With the worst of the market downturn appearing over, the improvement in house and unit prices this quarter suggests buyer confidence is returning which should bode well for sellers as we move into spring.”
In fact, Western Australia is expected to have the fastest growing economy by 2020 with an expansion of 4 per cent, according to the Commonwealth Bank.
Consumer confidence in the state has risen by more than 15 per cent over the past year, with the bulk of the increase witnessed within the recent months.
As one of the most affordable major capital cities, Perth has been attracting investors and home buyers consistently, recording a significant increase in sales activity over the past 12 months. The city’s rental market has also seen a decline in vacancy rates.
Perth is certainly past the bottom of its cycle and experts predict that investment activity in the capital city will increase further over the next two years.
Reflecting the high hopes for Perth, recent data showed numerous suburbs experiencing increases in sales over the quarter.
Of the 6,900 sales recorded in the June 2018 quarter, the suburbs of North Perth, , Singleton, Camillo and Beldon showed the biggest improvement in house sales. Most of the increase in house sales are in the $800,000-and-above price range.
Stock levels across the metro area decline by 1.1 per cent during the quarter. New listings are down to 3,007, the lowest since 2012.
By the end of June, there were 14,382 properties for sale in Perth.
Average days on market is currently at 67, one day faster than the March 2018 and June 2017 quarters, while vendor discounting dropped by 5 per cent.
Mr Groves said: “We certainly appear to have hit the ceiling as far as listing stock is concerned. Despite fewer sales being recorded this quarter, it is encouraging to see stock levels have continued to be absorbed.”
“With reductions observed in average selling days and discounting, this is a good indicator sellers are pricing their property in line with market expectations,” he highlighted.
Despite the good predictions, there are considerable risks in investing in the Perth property market, according to RiskWise’s Doron Peleg.
For one, there is an oversupply of units across the city, which is aggravated by more developments in the pipeline and a declining population that has consistently dropped since the end of the mining boom.
Unemployment figures are above the 10-year benchmark and mortgage arrears are high—red flags that are hampering the continuous rise in demand in Perth.
Mr Peleg strongly recommended the creation of a strategic plan for dwelling demand and supply as well as the improvement of the labour market to drive up population growth. Otherwise, the imbalance of the level of supply and demand in the state will continue to delay the rise of its property market.
According to him: “It’s important to note that supply must be measured and addressed separately for each area (suburb, postcode or SA4) to ensure there is effective long-term planning.”
He also supported the continuation of stamp duty concessions for first home buyers and downsizers as well as the incentives for first home buyers in less affordable areas and declining markets.
For five consecutive quarters, the median rent in Perth held steady at $350 per week, which is a welcome change following the prolonged periods of free-falling rents prices in the past years.
Looking closer, 102 suburbs in the capital city even saw median rent price growth during the June 2018 quarter. These suburbs include:
Leasing activity, meanwhile, has declined by 10.4 per cent to 12,633 properties being leased as a result of the decrease in population figures.
However, this could be a sign that tenants are starting to rent for the long-term instead of moving from dwelling to dwelling.
Mr Groves explained: “Tenants are also not moving as much as they were when prices were declining and there were good deals to be had. After 12 months of stable rent prices, lower activity levels suggest tenants are feeling confident rental prices have found a floor and therefore more inclined to stay put.”
Despite the decline, there are still 71 suburbs in Perth that saw leasing activity improve, including Brookdale (up 88.9 per cent), Ocean Reef (up 75 per cent), Kallaroo (up 63.6 per cent), Parmelia (up 48.3 per cent) and Hamersley (up 46.2 per cent).
Across Perth, listings for rental properties have declined over the quarter by 2.5 per cent to 8,293 properties—22.9 per cent lower than the same quarter last year.
If new dwelling commencements slow down, less properties will be coming onto the market and the existing stock will be soaked up faster, which will then result to a downward pressure on listing volumes and even more competitive rents, Mr Groves said.
At the moment, the vacancy rate in Western Australia’s capital is currently at 4.1 per cent.
“Although leasing activity softened during the June quarter, activity levels remain above long-term averages. This, combined with rapidly decreasing listings means tenants are needing to act faster to secure a rental property,” according to Mr Groves.
Perth is certainly gaining upward momentum over the last 12 months with a 6.4 per cent increase in year-on-year demand, the third highest increase in demand across Australia’s capital cities.
As demand rose in all Perth regions, north-east Perth saw the highest rise at 11.4 per cent, with a median price sitting at $430,000.
Meanwhile, north-west Perth saw the biggest growth over the quarter at 0.3 per cent, bringing the median price at $497,000. On the opposite side is the south-west area, which saw the largest decline at 5 per cent to a median price of $465,400.
Among the most popular suburbs in Perth for houses are:
For apartments, the most popular suburbs are:
In terms of sales, the top five performing suburbs are Duncraig, Mosman Park, Waikiki, Dayton and Palmyra, followed by Butler, Kelmscott, Tapping, Baldivis and Joondalup. Most of the areas recorded a median house price below $550,000 with the exception of Mosman Park, where the median price is over $1,000,000.
“Perth continues to present good opportunities for buyers, especially in the more affordable end of the market. There are healthy activity levels, with first home buyers taking advantage of the conditions to secure their first property before prices inevitably rise again,” Mr Groves highlighted.
Track the major market movements in Perth and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018, May 2018 and June 2018 market updates.