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...
While other major capital city markets are expected to start recovering soon, Perth continued to record declines over the past month. Should property investors start looking for wealth-creation opportunities elsewhere?
Herron Todd White’s Month in Review for July 2019 flagged Perth as a bottomed-out market for houses and a declining market for units, joining other capital city markets such as Brisbane, Melbourne, Darwin and Canberra.
Over the year, Perth and regional Western Australia recorded their largest annual falls in returns on record, CoreLogic data determined. Perth saw a -5.3 per cent decline while regional Western Australia experienced a -5.0 per cent decline.
According to BIS Oxford Economics, four of the major capital cities will have house prices remain below their peak over the next three years, including Darwin, Sydney, Melbourne and Perth.
The projections show that median house prices will remain 14 per cent below peak in Darwin. They will remain 13 per cent below peak in Sydney and 10 per cent below peak in both Melbourne and Perth until June 2022.
Still, despite the negative outlook brought by the perfect storm of stagnant house prices and sluggish rental conditions, CoreLogic’s Cameron Kusher remains positive about the recovery of capital city markets.
“With early signs that the rate of decline in housing values has slowed in Sydney and Melbourne and rental yields rising across most regions of the country, the outlook for total returns over the coming year looks a little stronger at a national level,” he said.
Overall, there could be a steady recovery for property markets across most regions in Australia.
CoreLogic’s Tim Lawless highlighted: “The housing market has reacted positively to the recent stimulus of lower mortgage rates and improved credit availability; however, the response to date has been relatively mild.”
“The ongoing tightness in housing credit is expected to keep a rapid rebound in housing values at bay, despite the lowest mortgage rates since the 1950s.”
Over the quarter, sentiment among buyers and sellers has been boosted due to improving market conditions, which are inclusive of consecutive interest rate cuts and the Liberal government being re-elected, according to Domain’s latest House Price Report.
However, median house prices still continue to fall across most major markets, except Hobart, Canberra and Melbourne, which saw a slight recovery.
Meanwhile, for unit prices over the same period, only Melbourne saw a price increase.
Perth property values continued to fall, with house prices falling by 2 per cent over the quarter and unit prices falling by 1.6 per cent.
CoreLogic’s latest Mapping the Market report determined that only 15 per cent of Perth suburbs had a median house value of more than $1 million, with the share dropping to 10.3 per cent in the previous month.
On the other hand, the share of Perth suburbs with a median unit value of less than $250,000 also increased, rising from 15.8 per cent in 2014 to 25.9 per cent in 2019.
Auction clearance rates are improving across the country, according to CoreLogic data. Overall, 854 homes were taken to auction across all capital cities over the second weekend of July, returning a preliminary clearance rate figure of 69 per cent.
The weekend result came after the previous weekend recorded “the highest final clearance rate since April last year” when 953 homes were taken to auction with a final clearance rate sitting at 64 per cent.
However, despite the improvements Australia-wide, state-by-state snapshots show that results continue to vary across major capital cities.
Perth, in particular, saw just 10 houses and two units on offer over the weekend, returning a 28.6 per cent sale success rate.
It paints a slightly different picture to 2018’s corresponding weekend, which saw 26 total auctions and a 43.5 per cent clearance rate.
In terms of supply, Perth has a lot of units that needs to be absorbed and a lot more units being constructed.
According to Right Property Group’s Steve Waters: “There [are] a lot of units still being constructed and a lot of units that have been constructed which need to be absorbed.”
Any move to a point of equilibrium is taking quite some time yet, the property expert forecasted.
BIS Oxford Economics’ associate director Angie Zigomanis agreed that the level of supply may continue to exceed the level of demand in the capital city for some time.
“Supply is running at record levels, with new dwelling completions having exceeded 200,000 in each of the past four years and expected to have peaked at a record of just under 227,000 dwellings in 2018-19.”
“This compares with underlying demand for new dwellings averaging around 195,000 per annum in the same period, which in itself is a record,” he said.
For investors who are keen to enter the Perth unit market, Mr Waters strongly encouraged them to consider “the pipeline” of housing supply and infrastructure before ultimately making a purchasing decision.
At the moment, developers are sitting on their hands in anticipation of the pipeline to kick off again, according to him.
“It’s not just a matter of what’s constructed now but what’s in the pipeline in terms of DAs or just beginning construction and what have you,” he said.
“Investors who can identify those good areas with the right fundamentals and perhaps take advantage of a market now where not everybody is in should be able to set themselves up for the future. But once again, buying the correct area is paramount.”
Over the quarter, weekly rents across the country have increased, with all but three capital cities recording rises, according to the CoreLogic Quarterly Rental Review.
Weekly rents across Australia saw an increase of 0.3 per cent to a median rent of $438 per week and a yield of 4.1 per cent.
In the combined capital cities, there was a rise of 0.1 per cent for the quarter but is down by 1 per cent for this time last year, with yields for all of the capital cities sitting at 3.5 per cent.
Hobart experienced the largest weekly rent growth at 1.1 per cent up to $457 per week.
Following this was Perth with 0.7 per cent up to $389 per week, then Melbourne with 0.5 per cent to $458 per week, Adelaide with 0.4 per cent to $386 per week and then Brisbane with 0.3 per cent to $435 per week.
Meanwhile, Canberra experienced the largest weekly rent loss for the quarter, declining 0.9 per cent down to $459 per week.
Following this were Sydney and Darwin, both with a decline of 0.3 per cent down to $580 per week and $456, respectively.
Despite Sydney’s decline, it is still the capital city with the highest median rent.
Although Darwin experienced weekly rental loss, it currently holds the highest yields of all the capital cities at 6 per cent. Following this was Hobart with 5.2 per cent, then Canberra with 4.8 per cent, Brisbane with 4.6 per cent, Adelaide with 4.5 per cent, Perth with 4.3 per cent, Melbourne with 3.7 per cent and Sydney with 3.5 per cent.
According to CoreLogic’s Cameron Kusher: “The past year has seen a change of direction for both the Brisbane and Perth rental markets – following a number of years of declines, rents are now climbing again.”
Property investors who are looking to enter the market without burning holes in their pockets will certainly benefit from the affordability in Perth and most parts of the Western Australian property market.
However, this affordability enjoyed by homeowners and investors across the state may soon cease to exist, according to Glenn “Goose” McGrath of Dashdot.
Green shoots of growth are showing up, he said, and most experts are not expecting them to stop any time soon.
“[There are] a lot of exciting data impressing around that area and some really progressive capital development plans that are going to decentralise Perth and make major economic hubs not dissimilar from Geelong and Parramatta ideas in Victoria/NSW, so that’s looking pretty exciting,” he said.
“We’re expecting it from the end of the year onwards is when we’ll really start to see a lot more activity there. It is still slow, it still is early days and we are only looking at very limited suburbs over there as lot of the areas are still in rebound.
“For a lot of people, that’s going to be possibly a little bit too risky, so we consider that to be more ambitious and more experienced investors.”
For those willing to take the risk, the property expert recommended looking for undervalued market opportunities.
“We’ve seen the market come off by tremendous amounts in those areas, so even if there was a rebound form of five years ago, we’re going to see huge uplift over the coming years,” he said.
“The best projects that we see there are the small development projects, so the yields are not necessarily in the right place, but the right opportunity to get great sites that are under value that can hold their own in terms of yields, that’ll have great future development potential.”
For investors who want to find optimal properties that have that future development potential, Mr McGrath recommended to look for properties priced between $450,000 and $600,000.
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.