From $9.95tn to $9.8tn: CoreLogic shows market is cooling
Half of Australia’s capital cities saw values decline in the months leading up to July, according to CoreLogic’s Mon...
Once among the slept-on capital cities, Perth has been slowly emerging as a good location for property investment as the more popular markets decline further. How can investors maximise opportunities in the WA capital?
Over the past 30 years, Perth has seen an average price growth of 5.3 per cent – from a median price of $101,125 in 1990 to a median price of $446,011 in 2019. It stands with Adelaide with 5.3 per cent, follows Hobart with 6.1 per cent and Canberra and Melbourne with 5.7 per cent, and precedes Brisbane with 5.2 per cent and Darwin and Sydney with 5.0 per cent.
According to Right Property Group’s Victor Kumar: “Perth is slowly starting to have a resurgence via the mining sector, and they have spent a huge amount of money in infrastructure to shore up the economy at the local economy there as well.”
Momentum Wealth’s latest Australian Residential Property Update report revealed that, while house prices in Sydney and Melbourne are falling, Perth, Brisbane and Adelaide has been witnessing significant improvements in their property markets.
The Perth rental market, in particular, leads the capital city’s charge towards full market recovery, supported by the rising activity in Western Australia’s resources sector
Data from SQM Research showed that average rental prices in Perth rose by 4.4 per cent over the year, while various pockets within the capital city experienced price growth over the last 18 months.
“Whilst early signs of recovery are yet to translate into headline growth figures, a number of areas within Perth’s central sub-region have been experiencing positive price movements since late 2017,” Momentum Wealth’s Shaun Strickland said.
“Investors will need to remain cautious of outer suburbs that are still facing considerable oversupply, but these initial improvements certainly suggest a more positive road lies ahead for WA’s property market.”
During the final week of May, property market data has largely stabilised as the federal elections concluded.
CoreLogic’s Property Market Indicator showed Adelaide as the only capital city that recorded a rise in property value at 0.1 of a percentage point.
Perth led the declines at 0.3 of a percentage point, followed by Brisbane at 0.2 of a percentage point and Melbourne with of a percentage point. Sydney, meanwhile, avoided any movement and merely held steady during the week.
Over the year, Sydney, Melbourne and Perth recorded the highest declines at 10.8 per cent, 10 per cent and 8.8 per cent, respectively.
The most recent quarter saw a rapid improvement in housing affordability, marking one of the fastest improvements since September 2013, according to the Housing Industry Association (HIA).
According to Tim Reardon, chief economist of the HIA, east coast capital cities saw the most significant improvements throughout the quarter.
“The improvement in housing affordability has been experienced across the country, with the exception only of Tasmania and the ACT, where ongoing house price growth has seen affordability remain static.”
Sydney saw the greatest improvement, with the index rising 12.4 per cent, followed by Melbourne at 9.6 per cent, Perth at 7.7 per cent, Darwin at 5.9 per cent and Brisbane at 2.5 per cent.
“With the completion of new homes remaining at elevated levels, affordability is poised to continue to improve,” Mr Reardon said.
During the past three months, 74.1 per cent of properties in Perth have been sold under the original listing price, which is just above the decade average of 73.6 per cent.
New listing volumes were down in most capital cities during the final week of the month, with Sydney leading at a decline of 25.5 per cent, followed by Melbourne at 24.6 per cent, Canberra at 18.1 per cent and Perth at 17.2 per cent.
Meanwhile, Hobart, Darwin and Adelaide saw a rise in listing volumes at 9.7 per cent, 4.9 per cent and 3.3 per cent, respectively.
According to CoreLogic’s research analyst Cameron Kusher, Australia has 5.3 months’ worth of housing supply available for purchase – the highest figure since 2012.
Perth, in particular, has 7.7 months of housing supply, making it the fourth capital city to record a seven-year high, with Mr Kusher identifying values and transaction volumes declining while stock for sale increased.
“The months of supply figure highlights why the housing market is generally falling. Credit conditions are tight, which means fewer buyers, and generally leads to a slower rate of sales.”
“Although vendors have responded by bringing fewer new properties to the market, total stock for sale remains elevated leading to a heightened months of supply figure,” Mr Kusher said.
Meanwhile, houses remained popular than units across capital cities, while the average time for houses on market fluctuated, with Melbourne, Darwin and Canberra reporting declines, Brisbane and Perth recording rises and Sydney, Adelaide and Hobart holding steady.
Hobart recorded the fastest time on market for houses at 38 days, while Perth recorded the slowest time on market at 87 days.
For units, Hobart was also the fastest at 39 days, while Perth was still the slowest at 89 days.
Over the past year, Perth properties saw their times increase by nearly half, sitting at 62 days for the last three months to April 2019, significantly higher than last year’s 48 days. Regional WA properties, on the other hand, are at 76 days, just above a year ago’s 73 days.
“Despite the ongoing weak housing market conditions over recent years in Perth and regional WA, the days on market figure has been fairly steady. This would seem to suggest that Perth vendors are setting appropriate initial list prices or are willing to reduce prices to meet the market,” Mr Kusher said.
Vendor discounting across capital cities, meanwhile, was between 5.2 per cent and 8.3 per cent for houses across most capital cities and between 6.7 per cent and 9.5 per cent for units, with Canberra as the low-end and Darwin as the high-end exception for both houses and units.
When considering to purchase a Perth property for investment, Real Estate Institute of Western Australia’s Lisa Joyce advised investors to aim for rental yields close to 4 per cent.
“Typically, as prices increase above the median house price or around the $500,000, yields tend to decline. So, investors look for capital growth and yield, and in today’s market, an acceptable yield would be around 4 per cent with anticipated growth.”
Investors should also seek affordability and good location based on economic factors such as employment figures and infrastructure spending on facilities such as schools, hospitals, recreational facilities and public transport facilities.
According to Ms Joyce: “Location is the most obvious factor affecting property values. The only thing you can’t change about a property is its location.”
“Low unemployment figures make an area pretty attractive because it provides a sense of security for individuals and families and, of course, strong rental potential for investors, which is important,” Ms Joyce said.
Human interest will also influence the success of investors as it influences the liveability of the property.
Before purchasing a property, she encouraged investors to ask themselves the following questions: “What can I do in a suburb? What can I do on the weekend? On the other side of the coin, what will people think of me if I live here?”
“The conversation piece is also the fact that some suburbs simply have a better reputation than others due to factors such as unemployment or high crime rates. Two homes or streets apart can differ substantially in value just because they’re in different postcodes.”
Owner-occupier appeal, on the other hand, could play an important role in the investor’s eventual exit strategy as it ensures the sellability of the property even when the market isn’t necessarily favourable to investors.
Finally, investors are advised to consider capital benchmark before purchasing a property in Perth or in any other location.
“If you’re going to buy the most expensive property in your suburb, it’s going to take longer for you to gain capital growth in your home, so that’s worth thinking about as well,” Ms Joyce said.
The proposed changes by APRA that would allow investors to borrow more, which has been dubbed as the ‘absolute biggest news for finance in three years’ has been welcomed by investment professionals in the Western Australian property market.
According to REIWA president Damian Collins, the proposals are set to spur a huge win for the ‘struggling’ market in WA if implemented, with more people entering the market and gaining the ability to purchase higher-quality properties.
“Our local property market has been struggling for quite some time. When APRA introduced tighter lending restrictions across the country during the rise of the Sydney and Melbourne property markets, this had huge implications for local property, with fewer buyers able to enter our already subdued market,” Mr Collins said.
“If these changes go ahead, this will make home loans more accessible for more people in a realistic way. A 7 per cent buffer was acceptable when mortgage rates were at a similar level, but now that interest rates are much lower, and expected to drop further with two rate cuts expected by the end of the year, the serviceability calculations should reflect this.
“If APRA introduces these changes and the banks pass the expected rate cuts on to borrowers, the assessment rate will drop from approximately 7.25 per cent to around 6 per cent. This will open the door to many more buyers, who will now be able to take out a loan had it not been for the high serviceability calculations.”
Momentum Wealth’s Emma Everrett, meanwhile, said that the recent announcements will certainly assist in restoring confidence and injecting more certainty into the WA property market.”
“We have already seen significant improvements across the state’s rental market, with vacancy rates dropping to their lowest level in almost six years and rental prices beginning to show signs of improvement, and with uncertainties surrounding potential taxation changes now gone, APRA’s proposal is a further stimulus in bringing buyers back into the WA market.”
Apart from the possibility of increased borrowing power for investors, the upcoming railway developments are also expected to boost capital city markets moving forward, according to property group CBRE.
Sydney, Melbourne, Brisbane and Perth, in particular, will be benefiting from the 107 per cent increase in investment into metro rail infrastructure over the next seven years.
“We estimate that associated real estate development projects within railway station suburbs in the rail projects outlined herein will reach ~$28 billion over the next 10 years,” CBRE’s A New Train of Thought report noted.
Perth’s Metronet , a five-year priority project that will cost $66 million annually, will extend the network from greenfield developments to the CBD in anticipation of population growth.
Areas connected through the Metronet, within the Swan urban growth corridor, are expected to be positively impacted by the project as it boasts developable land being used primarily for residential usage.
Akimos, in particular, sees 120 units in the pipeline and a future population growth of nearly 20,000 in under 10 years’ time. Akimos Central will see further mixed-use developments, with nearly 1,000 dwellings expected to be created over the next 10 years.
, on the other hand, hash 397 apartments in the pipeline, with the Metronet expected to see further medium to high-density developments over the next 10 years.
Another Perth area to watch, based on the latest CoreLogic Property Pulse report, Cameron Kusher, is , which saw a rise in property values of 0.4 per cent over the year.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.