Amid the ongoing health crisis, will the Perth property market continue onto its recovery or will it fall back down?
Like the rest of the world, Western Australia grapples with the economic uncertainties brought about by the coronavirus pandemic and its implications on Perth’s residential property market.
Momentum Wealth’s Emma Everett said that the Western Australian capital recorded a strong start to 2020 with strengthening rental conditions and four consecutive months of price growth, which are ultimately indicative of a more sustained recovery after a five-year downturn.
However, the COVID-19 crisis and the lockdown measures implemented thereafter have understandably added new uncertainty as to what will happen within the local housing sector and economy.
“Earlier data from the Real Estate Institute of Western Australia (REIWA) showed a total of 179 sales and 239 leasing transactions recorded in a single day, so we haven’t seen that immediate drop in sales and leasing activity like the financial markets,” she said.
“This is likely being driven by buyers and renters who have already committed to transactions, and we are expecting a slowdown in activity in the shorter term.”
Still, the long-term outlook for Perth’s property market remains strong.
According to Ms Everett, Perth’s property sector is already recording a shortage of stock for sale and properties for lease, so while it is expected that the current environment will delay activity, there is still a strong underlying demand for housing.
Perth recorded a total of 12,691 properties for sale in the week ending 22 March, which is nearly 5,000 less than the 17,288 properties recorded during the same period last year.
“This places [Western Australian] in better stead than markets such as Sydney where high levels of investor participation and oversupply could increase susceptibility to price fluctuations,” she said.
“While we will no doubt see a reduction in transactions as people deal with the uncertainties, the long-term fundamentals we are seeing in terms of tightening supply, limited oncoming stock and increased mining investment set the market in strong stead to resume its recovery once certainty is restored, and this will be supported in turn by easing credit conditions and government stimulus.”
Moving forward, Ms Everett encouraged buyers and sellers should apply any decisions in the context of a longer term outlook.
Marked by a fifth consecutive month of price growth, Perth has successfully sustained the recovery of its property market during the first quarter of 2020.
Newly released data from CoreLogic confirms that Perth’s residential property market was recording a sustained growth trajectory through to the end of March, as government measures tackling the coronavirus outbreak kicked in.
CoreLogic’s Home Value Index revealed a 0.5 per cent rise in house prices for the Western Australian capital in March, with values up 0.9 per cent across the first quarter of 2020.
According to Ms Everett: “This marks the fifth consecutive month of price growth for Perth’s residential property market, confirming as we have suspected for some time that the market was on the right trajectory for a more sustained recovery prior to the COVID-19 health crisis, which we know will have some impact on buying activity in the weeks and months to come.”
In terms of rental returns, CoreLogic’s Pain and Gain Report show national rents were 0.5 of a percentage point higher over the month.
The report found Sydney remains Australia’s most expensive city to live in, with the median dwelling rental value in January 2020 being $574 per week.
Median rents in Canberra came in second, falling just $18 per week below Sydney, with Hobart coming in third place with median rental returns of $470 per week.
Australia’s second-largest city, Melbourne, showed rental returns of $458 per week, while Brisbane will return investors $440 per week.
Perth emerged as Australia’s cheapest city to rent in, with a median cost of $390 per week, with Adelaide being $3 more a week.
Moving forward, low-interest rates and mortgage repayment relief measures could “insulate” residential property prices from a looming “plunge” in housing market activity, according to CoreLogic.
CoreLogic’s Tim Lawless said that, considering the temporary nature of this crisis, along with unprecedented levels of government stimulus, leniency from lenders for distressed borrowers and record-low interest rates, housing values are likely to be more insulated than sales activity.
“The extent of any fall in housing values is impossible to fathom without first understanding the length of time this health and economic crisis persists. Arguably, the longer it takes to contain the virus and bring economic operations back to normal, the higher the downside risk to housing values,” he said.
As sellers hold off on putting properties in the market, the Perth market maintains balance by a coinciding decline in new listings for sale.
Data from the Real Estate Institute of Western Australia (REIWA) saw sales activity drop from 657 sales in the week ending 15 March to 426 in the week to 29 March as buyers retracted from the market amid the coronavirus outbreak.
Meanwhile, new listings for sale dropped from 1,297 to 817 across the same period, with the number of sales listings withdrawn rising from 327 to 448 respectively as sellers choose to wait out the current market disruption.
In terms of auction clearance rates, Perth had 28 auctions with 57.1 per cent being sold.
Meanwhile, Melbourne recorded a preliminary auction clearance rate of 70.1 per cent across 1,173 auctions, while Sydney returned a 74.6 per cent clearance rate across 749 auctions.
Brisbane held 102 auctions, with a preliminary clearance rate of 51.7 per cent, while Adelaide had 99 auctions with 68.4 being sold. The nation’s capital had a preliminary clearance rate of 69.4 per cent, while Tasmania had a high clearance rate of 83.3 per cent.
According to Ms Everett: “While we are seeing a drop in buyer activity as anticipated, this is also coinciding with a decline in new listings for sale, with many sellers holding off until market conditions improve, so as it stands the market is maintaining some level of equilibrium.”
Further, the fact that sellers aren’t “panic selling” could be an indicator of longer term confidence in Western Australia, she said.
Perth recorded a total of 12,581 properties for sale (REIWA) in the week ending 29 March – over 4,000 less than the 16,992 properties recorded during the same period last year.
“From a buying perspective, we are actually seeing a number of buyers who are reviewing their finances, not just to mitigate the current situation, but also to prepare to capitalise on opportunities as the situation improves,” she said.
The shortage of stock for sale and rent in Perth stands the property sector in better stead than other major markets across Australia.
While the current environment will likely lead to a continued reduction in transactions as people deal with the uncertainties, there is still a strong underlying demand for housing, which places Western Australia in better stead than markets such as Sydney where high levels of investor participation and oversupply could increase susceptibility to price fluctuations, Ms Everett highlighted.
Meanwhile, in the leasing market, Perth continued to record strong activity, with the number of properties for lease continuing its downward trajectory.
Rental listings were down from 5,767 at the beginning of January to 5,417 on the 29 March 2020, while leasing levels remained consistent with figures recorded at the beginning of the year.
A total 1,011 properties were leased in the week ending 29 March – just a fraction less than the average 1,055 properties leased per week in January 2020.
According to Momentum Wealth’s Amanda Kroczek: “While we may see a decline in leasing activity over the coming weeks due to the temporary drop in interstate, regional and overseas migration, as it stands, we are still receiving a lot of enquiries from prospective tenants.”
Western Australia stands as a major beneficiary of interstate migration as east-coast Australians look to make their mark in the mining communities.
Net overseas migration appears to be accelerating and represented 58 per cent of the total 27,499 population growth over the past 12 months, Propertyology’s Simon Pressley noted.
While experts are not expecting the same level of rental growth that they were anticipating earlier in the year, especially with the impact the pandemic will have on jobs, they are hopeful the measures and assistance provided by the government, in addition to the relatively low levels of rental stock on market, will place Perth in strong stead compared to other markets that may be facing an oversupply of properties for lease.
“Perth especially is well placed to embrace that recovery,” Ms Everett highlighted.
Despite the uncertainty that comes with the health crisis, Mr Pressley is confident that, ultimately, the housing market will be safe from impending doom.
Looking back into history, real estate led the rebound out of Australia’s last recession 29 years ago, even when unemployment rate hovered around 10 per cent during the 1991 recession year and the subsequent two years.
Over those three years ending 1993, eight out of eight capital cities produced property price growth of between 2 per cent (Melbourne) and 27 per cent (Perth). Regional property markets were as strong, if not stronger, including Townsville (37 per cent), Toowoomba (33 per cent) and Wagga Wagga (22 per cent).
A similar recovery happened 12 years ago following the global financial crisis, which was largely deemed the biggest economic downturn in history.
Property prices again increased in eight out of eight capital cities over the three years ending 2010. Darwin (32 per cent) and Melbourne (21 per cent) were the best-performing capitals, while Ballarat (19 per cent), Bendigo and Launceston (both 18 per cent) and Armidale (17 per cent) were among many strong regional property markets.
Once the health crisis is over, Mr Pressley expects a surge in activity across major property markets as an enormous release of pent-up demand for goods and services transpires.
“For property, it’s likely to be akin to a flock of seagulls fighting over a chip!”
“In the coming months, as Australia gains confidence that we are getting on top of this nuisance germ, the attention of all levels of government will turn to policies to crank the economy back up. Mark my words, the real estate sector will be right at the top of priorities – it always is,” he concluded.