As Australia continues to recover from COVID-19, all capital cities are expected to record dwelling price rises this year, with Perth leading the charge. After a decade of decline, is the WA capital finally set for a year of growth?
Things are looking up for Perth in 2021.
The WA capital’s property market is forecast to deliver double-digit growth this year, driven by an ongoing recovery in the base commodities market.
According to the Housing Boom and Bust Report 2021, released by SQM Research, the rise in dwelling prices in 2021 will be the result of the previous year’s aggressive government stimulus, interest rate cuts and the upcoming changes to responsible lending laws.
National dwelling prices are expected to climb between 5 and 9 percent, with Perth standing out with top growth of 8 to 12 per cent on the base case forecast.
Perth started the year on a steady footing, with housing values recording solid gains. Will it continue its strong performance throughout the year?
Over the first month of 2021, Corelogic’s national home value index rose 0.9 per cent. The January movement took Australian dwelling values to a new record high, exceeding pre-COVID levels by 1.0 per cent and surpassing the previous peak hit in September 2017 by 0.7 per cent.
Perth prices continued to rise in January, gaining 1.6 per cent to a median of $484,280. At an annual rate, properties in the WA capital city rose 3.4 per cent.
While both house and unit values are rising across Perth, house values have increased at double the rate of units over the previous year. Over the month, Perth houses outperformed units, rising 1.7 per cent against a 0.8 per cent gain for units.
At an annual rate, house values in the WA capital were up 3.6 per cent compared with a 1.8 per cent increase in unit values.
Despite the strong gains in the recent months, Perth home values continue to be 18.6 per cent below their 2014 highs, giving buyers a relatively affordable entry point to a steadily recovering property market.
According to SQM Research managing director Louis Christopher, Perth’s predicted solid growth this year will be on the back of an ongoing recovery in the base commodities market, further encouraging mining-based project investment.
“There now exists a significant shortage of Perth rental properties, which translated into a greater than 9 per cent rise in market rents over 2020. This shortage is very likely to translate into even faster rent increases and stronger buyer activity in 2021.”
Inventory levels started 2021 in a tight position. The number of new listings added to the market nationally over the four weeks ending 24 January was 3.3 per cent lower compared with the same period a year ago and 13.3 per cent lower than the five-year average.
In terms of property available on the market, data from SQM Research showed Perth as the only city that recorded an increase in properties for sale in January.
Perth recorded a 0.1 percent increase in property listings over the month, rising to 21,501 from the December 2020 total listings of 21,478. Compared with the same period last year, listings declined 4.1 per cent.
As housing demand continues to ramp up, listing numbers across capital cities remain below average.
But Louis Christopher, managing director of SQM Research explained that the declines in listings at the start of the year were “traditional”.
“The month of January traditionally records falls in properties listed for sale as the market is still in a summer holiday mode. This year was no exception.
“However, when we consider the number of new listings compared to January 2020, there was a material rise in nearly all cities. This finding is consistent with the observed early start to the auction market over January and February,” he said.
National rental values continue to rise in January, particularly for houses, which rose 8.8 per cent from 12 months ago. Units also saw an increase of 3.5 per cent from the same period last year.
According to SQM data, the increase in national rental values were largely driven by Perth, Adelaide, Canberra and Darwin. On one hand, Sydney and Melbourne saw significant declines compared with the same period in 2020.
In the week ending 28 January 2021, Perth recorded increases in house rents of 1.2 per cent and unit rents increased by 2.0 per cent on a monthly basis. Compared with the same period in the previous year, house and unit rents rose 12.7 per cent and 10.7 per cent, respectively.
“It’s clear Sydney and Melbourne apartment investors were the losers of 2020, with rents and prices falling. However, if you owned an investment property in Darwin or Perth, or indeed regional Australia, you have had one of the best years ever,” Mr Christopher said.
“The move towards regional living was the primary reason why investors outside our two largest capital cities did so well.”
In an episode of The Smart Property Investment Show, Archista’s chief economist, Dr Andrew Wilson, underscored the strength of Perth’s rental market, noting that it has become one of the tightest markets in the country.
“It’s tough to get a rental property and, again, I think also the safe haven perception through coronavirus to those states such as Queensland and Western Australia are attracting people into those areas in higher numbers,” Dr Wilson explained.
SQM’s research showed that all cities saw declines in vacancies during the first month of 2021 with the exception of Hobart. The national residential vacancy rate fell by 0.2 per cent over the first month of the year to stand at 2.0 per cent, with the total number of vacant residential properties now at 71,297. Compared with the same period last year, the national vacancy rate was higher at 2.1 per cent.
Perth’s vacancy rate declined in the month from 0.9 per cent in December 2020 to stand at 0.8 per cent. This time last year, Perth’s vacancy rate was at 2.1 per cent.
Despite promising movements in capital city rental markets, Mr Christopher said the impacts of the pandemic might still be felt in the coming months.
“Demand for inner-city property will remain affected by the closure of the international border as well as ongoing caution on future city lockdowns,” he suggested.
“This will mean 2021 will remain largely a tenant’s market in the inner cities, but will also very much remain a landlord’s market for regional Australia.”
Auction volumes across the country rose from 884 in the week ended 31 January, recording clearance rate of 77.2 per cent, the highest final clearance rate recorded since February 2017.
However, the performance seemed to vary across states. In Perth, only 13 properties went under the hammer in the last week of the month, with a clearance rate of only 53.8 per cent.
Despite the general forecast among experts that Perth’s median price is expected to rise by up to 10 per cent, some specific areas in the WA capital are seen to heat up in 2021.
REIWA president Damian Collins said that as the local economy continues to bounce back, and with the pandemic continuing to impact travel, a growing number of Western Australians are looking to get their foot in the market.
He noted that suburbs with strong demand drivers, such as those near school zones or nearby key amenities, tend to be better positioned for longer-term growth. It is also an important consideration to buy property types that have a history of performing in that location. Buyers need to ensure there is demand for the property type they are buying within their target area.
Mr Collins expects suburbs within a 15km ring of the Perth CBD to outperform the market, thanks to a combination of location, amenity and housing composition.
Mr Collins warned against buying on the outskirts of Perth’s suburban fringe, citing the risks of oversupply that these housing estates can pose.
“Outer-lying suburbs may offer cheaper housing options, but these properties will suffer from lower capital growth due to the abundance of land in these areas which can create an oversupply of stock.”
Property experts believe that Perth is tipped to outperform the nation in 2021 and is set to experience strong growth over the next few years.
Favourable conditions are likely to entice investors back to the market, boosting supply and containing rent increases.
A unique combination of affordability, strong rental demand and high yields looks set to entice investors back into the Perth property market. After several years of low investor activity, especially among interstate investors, buyers who enter the Perth market are well positioned to benefit from forecast growth.
Mr Collins said that for investors to confidently re-enter the market, it was vital for the WA government to end its moratorium on rent increases and tenancy evictions in March 2021 as promised.