As other capital cities follow a downward trend, the Perth property market goes on to show all the hallmarks of recovery following the end of the mining boom. How can investors take advantage of opportunities in the Western Australian capital?
The decline of vacancy rates stands as one of the major signs of Perth’s recovery, according to Gemmill Houses’ Craig Gemmill.
Most recently, the WA capital’s vacancy rate dropped from 7 per cent to 2.3 per cent. This is expected to increase pressure on rents and, thus, allow investors to enjoy better returns.
Further, the rise in the mining and resource sector is also deemed a sign of the capital city’s recovery.
“When these mining and resource companies take off, people come over here and they get their jobs, but there’s always a lag because people are on contracts. What we find is that they’ll generally wait 12 months to see that their contracts are either going to get renewed or is going to be sustainable.
“If it is going to be sustainable, we would go into that buying phase probably towards the end of 2019 into 2020,” Mr Gemmill said.
Moving forward, the final sign that will mark the recovery of Perth will be the comeback of investors, who he described as ‘astute… knowing when the market has reached the bottom… when the prices aren’t going to drop anymore’.
At the moment, investors are already flocking into the areas north of Swan River, where a number of suburbs are benefitting from the state government’s R-Code system for rezoning, including Joondalup, Padbury, Craigie, Kingsley and Hillarys.
According to the latest CoreLogic Property Market Indicator, home values in Adelaide continued to rise from the week prior by 0.1 per cent, while Perth held steady and saw no movement.
Over the month, dwelling values across major Australian capital cities declined by 0.5 per cent to 7.2 per cent, but the rate of decline has been easing compared to data from December, according to the CoreLogic April 2019 home value index.
In April, every capital city saw a decline in home values, except for Canberra, which saw values rise by 0.4 per cent to $596,405.
Darwin saw the biggest decline at 1.2 per cent down to $390,621, followed by Hobart, which fell by 0.9 per cent; Sydney, which fell by 0.7 per cent down to $780,672; Melbourne, which fell by 0.6 per cent to $621,759; then Brisbane and Perth, which both fell by 0.4 per cent to $484,047 and $440,546, respectively; and then Adelaide, which only fell by 0.1 per cent to $430,352.
The easing of home value declines, along with a rise in mortgage-related valuations, improvement in ABS household finance data for February and auction clearance rates holding around 50 per cent, means that the housing market has potentially moved past the worst of the downturn, CoreLogic’s Tim Lawless said.
“Considering that tighter credit conditions were one of the primary catalysts for the housing market downturn, any sign that credit availability is improving would be a welcome outcome for the housing market.
“The prospect for lower interest rates is another factor that could support an improvement in housing market activity later this year,” according to him.
In the latest Property Pulse report, it has been found that Perth’s dwelling values have fallen 18.1 per cent from its peak, or $97,797, while regional values in Western Australia are down nearly a third compared to its peak at 31.6 per cent, or $118,734.
In contrast with dwelling values, rents rose in most capital cities this April, according to CoreLogic’s national hedonic rental index.
The rises are lead by Melbourne at 0.5 of a percentage point, Perth at 0.4 of a percentage point, the ACT and Sydney both at 0.3 of a percentage point, followed by Brisbane at 0.2 of a percentage point and Hobart at 0.1 of a percentage point. Both Darwin and Adelaide held steady.
Over the quarter, leasing activity in Perth has also risen as the vacancy rate hit a six-year low – another sign of the recovery of its property market.
During the said period, leasing volumes rose by 9 per cent, according to data from the Real Estate Institute of Western Australia (REIWA).
Meanwhile, the median price in the Perth rental market remained at $350 per week – the ninth quarter in a row. While it remains as the most affordable rent compared to other major capital cities, the position of power could be shifted away from tenants soon.
According to the Domain Rental Report: “House rents have improved for two consecutive quarters and units have flatlined for two years,” the report stated. This is a marked improvement, and the first sign of consistent growth for houses, following rent falls that spanned roughly four years.”
In fact, even with the lack of movement in median rent, 29 per cent of Perth suburbs saw a rental increase over the quarter.
The number of properties leased in Perth rose from 12,870 last quarter to 14,003 this quarter, with 42 per cent of suburbs seeing a spike in leasing volumes.
REIWA president Damian Collins said: “Almost all key market indicators showed improvement during the March quarter, causing the Perth vacancy rate to decline to 2.5 per cent. This is the lowest quarterly vacancy rate we’ve seen since the March 2013 quarter, putting the Perth rental market in favour of landlords.”
“Although overall rents are stable on both a quarterly and annual basis, the median house ($360 per week) and unit ($330 per week) rents are both up $10 per week compared to the March 2018 quarter,” Mr Collins said.
“[REIWA] analysis also shows there were more units leased this quarter than last, which suggests the composition of leased stock is impacting price movement in the overall market.”
As leasing activity increased, the number of listings declined by 2 per cent to 6,738 properties, and down by 25 per cent compared to this quarter last year, ultimately spurring the transition of markets in favour of landlords.
Rental properties in Perth are now seeing an average of 42 days on market – a decrease of two days compared to the last quarter and five days for this quarter last year.
“With less stock available and increased activity, there is more competition amongst tenants to secure their preferred rental.”
New listing volumes were down in all capital cities this month, resulting in a combined loss of 28.7 per cent, with the largest declines recorded in Melbourne at 34.1 per cent, Sydney at 33.6 per cent and Perth at 24.1 per cent. Darwin saw the smallest decline at 11.1 per cent.
Houses remained more popular than units, with Hobart seeing the fastest time on market for houses at 40 days, followed by Canberra with 41, while Perth, Darwin and Brisbane had the slowest time on market at 79 days, 78 days and 70 days, respectively.
For units, Hobart was again the fastest at 26 days, while Darwin, Perth and Brisbane were again the slowest at 134, 81 and 77 days, respectively.
Vendor discounting was between 5 per cent and 8.3 per cent for houses across most capital cities and between 5.2 per cent and 9.6 per cent for units, with Canberra as the low-end exception for houses, Hobart as the low-end exception for units and Darwin as the high-end exception for both houses and units.
The latest CoreLogic Quarterly Auction Market Review report found that clearance rate across Australia’s capital cities over the quarter stands at 49.9 per cent out of 14,647 residential auctions – an increase of 6.6 per cent over the December 2018 quarter.
According to CoreLogic’s Cameron Kusher: “Auction volumes and clearance rates are mirroring the broader slowdown in property transaction and housing market conditions. Vendors are less confident of achieving a positive result at auction, and this has further impacted auction volumes during what is traditionally a quiet start to the year.”
Sydney’s clearance rate of 53.2 per cent was the strongest over the quarter, followed by Melbourne’s 51.8 per cent, Adelaide’s 48.8 per cent, Canberra’s 45.3 per cent, Hobart’s 44.8 per cent, Perth’s 31.4 per cent and Brisbane’s 31.3 per cent.
Looking down at a suburb level, Sydney’s Erskineville saw a clearance rate of 83.3 per cent, Melbourne’s saw a clearance rate of 75 per cent, and Brisbane’s Sunnybank Hills saw a clearance rate of 35 per cent.
Meanwhile, all capital cities saw auction rates rise, with the exception of Canberra, which declined 1.6 per cent, and Hobart, which declined 5.2 per cent.
Melbourne saw the highest level of auctions at 6,375, while Hobart saw the fewest at just 45.
Looking down at a suburb level, Melbourne’s Craigieburn Reservior area saw the highest number of auctions for the quarter at 99, followed by Sydney’s Randwick at 73, Brisbane’s Sunnybank Hills at 24, Canberra’s Curtain at 23, Adelaide’s and Adelaide area at 15 and Perth’s Dianella and East Perth area at 10.
The increase of international students in Australia’s major capital cities are expected to spur growth in the property market, according to CBRE’s Global Living report.
International students, especially those from the Asia-Pacific region, are becoming more mobile, thus putting investors and developers in a good position to provide accommodation for this demographic, with the potential for higher yields.
In fact, 9 per cent of investors identified student accommodation as the most attractive alternative real estate sector, higher than last year’s 4 per cent, based on CBRE’s recent Global Investor Intentions survey.
Developers also recorded a current pipeline of approximately 18,000 beds in 51 projects over the course of 2019 to 2023. Of this pipeline, the majority are in Melbourne, making up 44 per cent, followed by Perth at 15 per cent, Brisbane at 12 per cent, and then Sydney at just 5 per cent.
There are also $100 billion worth of infrastructure projects announced in the federal budget, which is expected to allow Australia to survive a global economic slowdown and ultimately place the country in a favourable economic environment moving forward, according to the International Construction Market Survey 2019 by Turner & Townsend.
“The federal government’s $100 billion investment in infrastructure over the next decade, in addition to the state government investments, will help cushion the economy and keep jobs growth strong,” according to Garry Emmett, economist for Turner & Townsend.
“Sydney Metro, Melbourne Metro, Cross River Rail in Brisbane and Perth’s METRONET will help counterbalance downturns elsewhere. The announcement of the Inland Rail project for freight adds to the high levels of infrastructure investment.
“An already busy construction sector in Sydney and Melbourne in 2018 was boosted by a pledge of around $50.4 billion of public funding for road and rail projects in these states alone.”
The suburb of Yanchep, in particular, is expected to become a ‘powerhouse’ of the Perth property market moving forward as over $750 million worth of infrastructure spending is set to be rolled out over the next three years, according to Jarrod Rendell, project director of Capricorn Beach estate in Yanchep.
The projects include a $520 million rail extension to Yanchep, a $210 million freeway extension to Romeo Road to the south of Yanchep, and the $23 million upgrade of Marmion Avenue to Yanchep.
“This combination of new transport infrastructure will dramatically reduce the travelling time between Yanchep and the Perth city centre by up to 10 minutes, making it even more desirable to property buyers seeking a coastal lifestyle.”
“The massive new transport infrastructure spending around Yanchep over the next three years will give a sustained upward momentum to property values in Yanchep and cement its position as a top performer in the Perth property market,” Mr Rendell said.
The strong mining and energy exports, along with commercial, health, defence, retail, hotel and natural resources construction, are also contributing to the Australian economy.
In order to assist the improvement of the property market and the local economies, property experts are pushing for a greater focus on policies that will develop city centres, such as the City Deals policy, which will roll out projects surrounding cities, taking on board all three levels of government.
“Australia’s major cities are among the fastest-growing in the developed world. The way we plan for and invest in our cities will have a huge impact on our future economy and quality of life,” Property Council of Australia CEO Ken Morrison said.
“Delivering good growth in our cities and regions demands more than just tinkering with immigration levels. Good growth requires real policy purpose and investment in priority infrastructure projects to help our cities and their residents reach their full potential.”
“Our four biggest cities will continue to attract the overwhelming majority of migrants because that is where most Australians already live and work. Let’s keep our eye on the main game: great cities for current and future generations of Australians.”
Apart from the improvement of City Deals, experts also recommend the improvement of major infrastructure projects through an advisory board, funding for a future cities cooperative research council, further investment in infrastructure and the restoration of the asset recycling fund in order to incentivise major state projects.
Other factors that are likely to drive growth into the property market this year, according to Propertyology’s Simon Pressley, are the federal budget in surplus, jobs growth, tight housing supply and declining vacancy rates, free trade agreements and defence spending.
As Perth goes on to recover from the end of the mining boom, the capital city offers strong opportunities for investors looking to capitalise on the property market.
According to Mr Gemmill, the establishment of the state government’s policy directions 2031 allowed for new town planning schemes in local councils and rezoned areas, which could potentially spur growth across the capital city.
“Any suburb that is close to shopping centres, rail lines, transport, existing infrastructure, they’ve been supporting an increase in density,” Mr Gemmill said.
“We have what we call the R-Codes here. So you go from an R-20, which is one home on 500 square metres, and they increased the density to R-40, which is two homes on 500 square metres. That’s been a big driver.”
Among the suburbs that benefited from the R-Code system can be found north of the Swan River, including Joondalup, Padbury, Craigie, Kingsley and Hillarys.
In terms of chasing median house price growth, Mr Collins encouraged investors to avoid suburbs in the lower end as they are currently struggling to see positive movements.
“On-the-ground information from our members suggests that the middle and higher end of the market is tracking reasonably well, signalling some suburbs in this part of the market may be in the early stages of recovery. While many suburbs in the lower end still appear to be struggling, there are excellent opportunities available to secure your dream home or investment property at a competitive price,” Mr Collins said.
“[REIWA] analysis shows 37 per cent of suburbs in Perth experienced stable or median house price growth during the quarter,” according to him.
The Perth suburbs that saw the most notable increases for median house price growth were Falcon, Karrinyup, Mullaloo, Roleystone and Heathridge, while the median unit price growth winners were Rockingham, , South Perth and .
There are also opportunities in regional Western Australia, where prices rose by 12.8 per cent over the quarter.
Among the major WA regional centres that saw impressive price growth over the said period are:
Median house price
Price growth (as a percentage)