Experts believe that, while other major capital series are on their way to recovery, Perth is just “at the right stage of the property cycle”. Will the Western Australian capital actually be able to provide substantial returns to investors today?
Unlike most cities on the east coast, Perth saw the peak of property prices in 2014. Since then, following the end of the mining boom in 2014, the median house prices in the capital city has fallen by 14 per cent.
However, according to Domain, the more expensive suburbs of Perth generally held up better during the price downturn.
The largest increase recorded in the Western Australian capital was in the beachside suburb of Cottesloe, where the median house price grew by 26 per cent over the past five years, from $1.750 million in 2014.
Over the next three years, as Australian house prices stabilise, the Western Australian capital is expected to recover, ultimately achieving significant value growth, according to new research from insurance giant QBE.
Perth house values are expected to rise by 6 per cent by 2022, while unit values are expected to rise by 5.3 per cent.
All other capital cities are also expected to see growth, with Brisbane achieving the highest growth for house prices at 20.3 per cent and Darwin achieving the highest growth for unit prices at 9.2 per cent.
“Although tighter lending standards, declining property prices and uncertainty related to the economy have deterred some, we still expect a similar number of first home buyers to be getting the keys to their very own property this year,” QBE’s CEO Phil White said.
At the moment, after the “the toughest 12 months in the last 30 years” for the property market, Perth, along with Brisbane and Adelaide, is at the right stage of the property cycle, having balanced supply and affordability. This means that there will be growth in the capital city, but it is unlikely to be spectacular, a new research by Propertyology determined.
Despite the resilience of select suburbs, Perth suffered one of the sharpest declines over the quarter at 1.4 per cent, following Darwin (1.8 per cent) and preceding most of the capital city markets, including Melbourne (0.8 per cent), Brisbane (0.7 per cent), Adelaide (0.6 per cent) and Sydney (0.5 per cent).
However, national housing market conditions have actually improved when compared to the March quarter, when a 3 per cent drop in prices was recorded across Australia’s combined capital cities, according to the latest Residential Property Price Index from the Australian Bureau of Statistics (ABS).
Property research firm CoreLogic’s September home value index results also revealed that national dwelling values rose by 0.9 per cent over the month, driven largely by the recovery of Sydney and Melbourne.
Auction clearance rates have also improved, with the latest data reporting a preliminary clearance rate of 75.7 per cent across Australia’s combined capital cities in the week ending 15 September.
The pick-up in sentiment has followed the Reserve Bank of Australia’s back-to-back rate cuts in June and July, the federal government’s tax deductions, and changes to mortgage lending guidance.
Still, investors are still advised to tread carefully, particularly across the capital city markets.
CoreLogic head of research Tim Lawless said: “Although housing values are now consistently tracking higher, at least at a macro-level, the national index remains 6.8 per cent below the October 2017 peak, indicating that buyers still have some time to take advantage of improved housing affordability before values return to record highs.”
Over the month, only Brisbane and Canberra saw values rise by 0.1 per cent and by 1 per cent, respectively, while Adelaide property values held firm.
Housing values in Hobart declined by 0.4 per cent, while Perth (0.8 per cent) and Darwin (0.2 per cent) continued their long run of losses.
“Household debt levels reached new record highs relative to their incomes over the June quarter, suggesting the sector is vulnerable to a shock or change in household circumstances,” according to Mr Lawless.
Australia-wide, the median asking price for units is now $568,300, while a house will set an investor back $942,400.
National residential property listings fell by 4 per cent nationwide over the month of September, according to figures released by SQM Research.
The research showed that September listings fell from 325,963 in August to 312,754. Over the past 12 months ago, listings were down 6.9 per cent.
According to SQM Research’s managing director Louis Christopher, September’s listings decline was an “abnormal result”.
“Listings normally rise for the first month of the spring selling season. New listings did rise. It’s just that older listings recorded a large decline. It suggests stock is being absorbed at a quicker rate,” the managing director said.
Over the month, Hobart experienced the highest decrease in listings at 6.4 per cent, followed by Melbourne and Perth, both with a 5.8 per cent decrease, then Sydney with a 5.7 per cent decrease, and Canberra with a 1.1 per cent decrease.
Year-on-year, Sydney’s listings declined by a significant 20.4 per cent, while Melbourne, Brisbane and Adelaide declined by smaller margins, falling by 5.9 per cent, 4.6 per cent and 6.3 per cent, respectively. Perth’s and Darwin’s year-on-year listings also saw declines of 4.6 per cent and 3.6 per cent, respectively.
Only Canberra and Hobart finished in positive territory over the year, growing in lists by 8.4 per cent and 3.1 per cent, respectively.
Meanwhile, a new sales data analysis by CoreLogic revealed that property owners across Australia are holding on to their homes for longer. In fact, over the past 12 months, houses were held for 11.3 years on average while units were held for 9.6 years on average.
The latest data on average length of property ownership represents an increase of 3.8 years for houses and 2.9 years for units over the past 10 years.
According to CoreLogic’s research analyst Cameron Kusher, the data suggests that home owners are more reluctant to sell their properties, as reflected by the ongoing decline in sales transactions.
“Other factors at play include: the rising cost of selling and purchasing property combined with affordability constraints across some of Australia’s more expensive capital cities [contributes] to owners holding [on to] their properties longer,” Mr Kusher said.
“It’s expected that this trend will continue over the coming years, given such concerns aren’t likely to see much improvement in the near future.”
Melbourne houses recorded the longest period of ownership for houses at 12.5 years on average, followed by Sydney at 12.4 years, Brisbane at 11.3 years, Perth at 11 years, Hobart and Canberra at 10.9 years, Adelaide at 10.1 years and Darwin at 9.2 years.
On the other hand, Perth took out the top spot in terms of units with 10.8 years on average, followed by Brisbane at 9.8 years, then Sydney, Adelaide and Hobart at 9.6 years, Darwin at 9.5 years, Melbourne at 9.3 years, and Canberra at 8.7 years.
In the next three years, QBE’s Mr White said that growth would come in response to a supply and demand “imbalance”.
“As well as lower interest rates, and expectations that these will remain low for some time, government incentives and an easing of lending restrictions, our report suggests that a drop-off in construction completions is likely to drive prices higher over the next few years,” he said.
“Building approvals fell by 19 per cent in 2018-19, and completions are forecast to fall to 163,500 dwellings by 2020-21 (down by 22 per cent from the average over the past five years). With population growth expected to remain strong, that’s well below underlying demand. This could mean some previously oversupplied markets will tip back into undersupply by 2021-22.”
The “discrepancy” between the current demand for housing and the timing of future supply of units would also result in “greater volatility and upward pressure on property prices.”
While the financial performance of high-density apartments in every Australian city over the last decade has been “horrible”, according to Propertyology, Perth stood out with a record of substantial price growth.
Greater Perth’s median detached house price grew by 19 per cent over the last 10 years, new research has revealed.
However, over the same period, over 20 suburbs in the Western Australian capital produced up to 32 per cent decline in median apartment value.
Propertyology’s managing director Simon Pressley explained: “Each and every year that an individual city’s housing market performs sluggishly, the risk of high-rise apartment value decline significantly increases.”
“For a variety of reasons, Propertyology is very concerned for all owners of high-rise apartments that were built in the last 20 years. One such concern is the enormous repair bill for major structural defects – several highly publicised buildings being just the tip of the iceberg.”
Meanwhile, SQM Research found that national residential rental vacancy rate marginally declined, with the total number of vacancies Australia-wide now at 75,757 vacant residential properties – a decrease of 589 over the month, but up 5,310 dwellings over the past 12 months.
Breaking down the capital cities, Sydney, Perth and Adelaide recorded minor decreases of 0.1 per cent in vacancy rates, while Brisbane, Canberra and Hobart increased by 0.1 per cent.
All other capital cities remained steady over the month.
“Residential property rental vacancy rates remained largely steady for the month of August with perhaps the exception of Perth which continues to record a recovering rental market,” Mr Christopher said.
Hobart remains the capital city with the lowest vacancy rate at 0.6 per cent, while Sydney continues to have the highest vacancy rate in the country at 3.4 per cent.
Along with other capital cities, Perth is expected to experience price recovery and growth over the years, supported by several economic indicators.
Among these economic indicators that will spur recovery across property markets are: