Some of the effects of the end of the mining boom seem to be lingering in Perth, causing a continuous decline in dwelling values across the capital city. Can the Western Australia capital bounce back?
During the week ending 30 September 2018, almost all major capital city saw values fall, with the largest decline in Melbourne at 0.2 per cent, followed by Sydney, Adelaide and at 0.1 per cent. Only Brisbane’s dwelling values remained steady in the past week.
Across the five major capital cities, the combined monthly change in values sits at -0.6 per cent.
According to the Real Estate Market Facts report from the Real Estate Institute of Australia (REIA), both houses and other dwelling types experienced drops in values over the quarter—house prices dropped by 0.8 per cent while prices of other dwelling types dropped by 0.3 per cent across Australia’s capital cities.
REIA president Malcolm Gunning said: “The figures reflect reports of a changing dynamic in the market, particularly in the nation’s major cities.”
In Sydney, Melbourne, Perth, Darwin and Canberra, the weighted average median price for houses declines to $765,098, while the weighted average median price for other dwelling types in Sydney, Perth, Adelaide and Canberra dropped to $590,935.
Meanwhile, the median rent for three-bedroom houses only rose in Canberra and Darwin. Rental rates in Perth remained steady, while other capital cities recorded declines. The same goes for two-bedroom houses except Hobart saw a rise while Darwin saw a decline.
In contrast with other major capital cities, even Sydney and Melbourne at their softening phase, Perth offers some of the more affordable investment opportunities.
CoreLogic’s Housing Affordability Report found that saving for a deposit in Western Australia’s capital takes only an average of 7.8 years, which is significantly lower than Sydney’s 9.1 years, Melbourne’s 10.8 years and Brisbane’s 8 years.
Moreover, the share of income required for mortgage repayments currently sits at 31.3 per cent—a stark difference to other capital cities at 31.9 per cent to 48.4 per cent.
According to CoreLogic’s Tim Lawless: “This servicing reduction is partly because discounted variable mortgage rates have almost halved over the past ten years. At its peak a decade ago, a repayment on a house required 52.4 per cent of household income and a unit required 48.7 per cent of household income.”
As the property markets of Sydney and Melbourne start to soften after an unprecedented property boom, price growth has been felt in other capital cities albeit limited with improving housing affordability through rising incomes and declining mortgage rates.
However, the anticipated increase in variable mortgage rates is likely to affect affordability in Perth and other capital cities.
In the past month, three out of the four big banks have expressed their intention to increase mortgage rates, while smaller regional banks have already done so over the past few months due to rising short-term funding costs.
While the rate increases could be relatively small, the effect on the property market could be significant, according to CoreLogic’s Cameron Kusher. In fact, it could very well worsen the already existing declines in Sydney, Melbourne, Perth and Darwin and slow down existing growth in other areas.
Mr Kusher said: “This move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further,” Mr Kusher highlighted.
“From the lenders’ perspective, clearly they realise that the housing downturn is becoming entrenched, particularly in Perth and Darwin, but more recently in Sydney and Melbourne, and they are doing what they can to maintain profitability in the face of lower mortgage volumes,” he added.
As listings grew in other capital cities, Adelaide and Brisbane saw the worst declines in listings at 10.9 per cent and 9.7 per cent, respectively.
Meanwhile, average vendor discounting was between 4.6 per cent and 5.8 per cent for houses, and between 5.6 per cent and 6.5 per cent for units across capital cities, with Perth as the high-end exception for houses at 8.1 per cent.
Over the quarter, units reselling showed a higher proportion of losses compared to houses across Australia, according to the latest CoreLogic Property Pulse.
The trend was particularly evident in capital cities, with Darwin and Perth standing out as locations with the highest proportion of loss-making unit resales at 71 per cent and 47.8 per cent, respectively.
“Since peaking in January 2008, regional WA unit values are down by 47.5 per cent and now back to levels seen in 1988. In Perth, unit values are 18.2 per cent lower after peaking in July 2013 and are now worth around the same value as they were in May 2006,” Mr Lawless said.
Considering all other types of dwellings, Perth remains responsible for the highest level of resales losses at 23.4 per cent.
While most aspects of the Perth property market does not deliver much of good news to investors, its rental market continues to be the capital city’s beacon.
Over the last three years, the rental market of Perth has seen its best performance due to a low vacancy rate, which settled at 4.5 per cent last month.
According to Real Estate Institute of Western Australia (REIWA) Hayden Groves: “What we are seeing is a steady yet healthy improvement in tenant activity.”
“Steady rents, easing supply as listings for rent continue to fall and stronger demand with more leasing activity all point to the rental market leading Perth’s property market recovery.” he highlighted.
Leasing activity in Western Australia’s capital rose to 17 per cent, with over 4,800 dwellings leased out within a month. A huge portion of the growth in leasing activity was recorded in Leederville, Glendalough and Secret Harbour.
Meanwhile, median rent in Perth remained at $350, holding steady since April 2017.
These suburbs offer real estate assets at a median price ranging from $505,728 to $563,370, as well as good level of supply and demand days on market, vacancy rates, vendor discounting, rental yields, auction clearance rates, percentage of stock on the market, percentages of renters to owner-occupiers and online search interest.
According to LocationScore’s Jeremy Sheppard: “Positioned 18 kilometres south of the CBD, Bibra Lake provides housing with a median just over $500,000, all within a short drive to popular Fremantle.”
“The research shows sellers are in no panic and buyers are making decent offers. This is a healthy market for investors because demand is ahead of supply, but not alarmingly.
“Rocketing demand relative to supply is an excellent gateway indication of a suburb’s potential for real estate price growth. By unearthing hot demand growth zones, investors can narrow down the search area when looking for their next investment,” he added.
The suburbs found between 25 to 35 kilometres of the city, including Brookdale, Hillman, Dayton, and Medina, are also expected to experience growth within the coming years mainly due to their affordability and proximity to employment hubs, public transport and other significant infrastructure.
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, June 2018, July 2018 and August 2018 market updates. Visit Smart Property Investment's Property Market News page to get updates on other major capital cities.