When it comes to property investments, the news out of Western Australia is bleak as the state comes to terms with the end of its mining boom.
What did the Perth market look like in Western Australia in 2016?
Real estate agents in WA say the Perth market continues to slump with values still falling and a large oversupply of properties on the market for sale.
Louis Christopher, managing director of SQM Research, observes: “It says much that Perth currently has more properties for sale than Sydney right now.”
In the Christopher’s Housing Boom and Bust Report 2017, he notes that Perth’s listings have risen for the past three years. “This has taken its toll on the market with prices down by around 5 per cent over the past 12 months and some signals that perhaps there could be an acceleration of the downtrend,” he says.
According to SQM Research, asking prices were down 2.5 per cent in the September quarter alone. The median asking price for a house in Perth, now at $682,600, is 5.2 per cent lower than this time last year. That’s really bad news for those looking to sell an investment property.
“Property prices are starting to return to some semblance of fair value after years and years of being overvalued. After another year of declines, they should be close to fair value.”
Christopher says: “There really is not much going on for the city right now. Unemployment continues to rise and state GDP continues to fall, down 13 per cent from its peak. The state government is fighting. Population growth rates have stalled. We can at least say that property prices are starting to return to some semblance of fair value after years and years of being overvalued. After another year of declines, they should be close to fair value.”
Cautionary consumer sentiment affecting the Perth market
Herron Todd White, the largest independent property valuation and advisory group in Australia, says the major events affecting the Perth residential market include continued cautionary consumer sentiment, the downturn in the mining and construction sectors, ongoing negative migration and population growth, and job security concerns.
Added to this was the winter, which was a very long and cold one this year – the coldest winter since 1998. For the most part, purchasers went into hibernation leaving real estate agents in Perth with empty open homes.
What does the Real Estate Institute of Western Australia think?
The Real Estate Institute of Western Australia (REIWA) September quarterly statistics confirm a further reduction in the Perth median house price to $512,500, down from the June figure of $532,000. However, the median unit price increased to $429,000, up $19,000 from June.
That said, REIWA’s latest data shows that the Perth median house price did rise by 0.8 per cent to $530,000 in the three months to November.
“If you’ve been holding out for the best possible price, it would appear now is the time to act.”
“This is the first time since August this year that we’ve seen an improvement in the Perth median house price. This latest data, combined with the slight decline in affordability across the state in the September quarter, suggests that the worst may be over,” says REIWA president Hayden Groves.
“If you’ve been holding out for the best possible price, it would appear now is the time to act. With listings for sale still hovering above the long-term average, there is plenty of choice in the market to find your dream home or investment property at a competitive price.”
Is Western Australia still a good state to invest in?
Real estate agents will tell you that WA is a good place for young people. The latest Housing Affordability Report by the Adelaide Bank and REIW reveals that the state had the highest proportion of first home buyers in the owner-occupier market in the country. The average loan amount for this group increased by 1.3 per cent over the September quarter, but was down by 4.6 per cent compared to the same quarter in 2015.
“It’s certainly more affordable for WA first home buyers to enter the market now than it was a year ago.”
“It’s certainly more affordable for WA first home buyers to enter the market now than it was a year ago. However, the increase over the quarter in the amount first home buyers needed to borrow for their mortgage indicates that house prices may be beginning to stabilise,” says Groves.
Herron Todd White notes that throughout the first half of 2016, the market in the main towns of the south-west of WA experienced a reduced level of sales with a weakening of values throughout the lower and middle segments. But by mid-year, these centres started to see sales volumes increase and values level out.
The inland townships, top end of the market and the rural residential localities are still weak, but there is ongoing demand for well-located properties that present to a high standard.
In Esperance, market activity over this year has been quite erratic with bursts of frenzied activity interspersed with periods in the doldrums that seem to have dragged on too long. There has been no real consistency for the whole 12 months, yet some good sales have been achieved.
But Herron Todd White adds that there has generally been a sound level of consistency in rural residential values for some time. Larger rural lifestyle properties have also seen some minor activity. Very few of these properties are ever available on the market and tend to attract sound demand when listed.
“Karratha rents are down by 28 per cent in just the past 12 months. The average house rents for $400 a week now, having peaked at $2,000 in 2011.”
Christopher is not too optimistic about the mining towns of in the north west, such as Karratha and Port Hedland. “Sadly, the news remains dire with falling prices and rents. Karratha rents are down by 28 per cent in just the past 12 months. The average house rents for $400 a week now, having peaked at $2,000 in 2011.”
Is Perth still a good city to invest in?
Brent Compton, a real estate agent at Ray White South Perth, says while the market is posing challenges, it’s certainly not too bad.
“We are going quite well. We have sold three properties last week. Inquiries are up, but things are still patchy,” he says.
“Some areas still have some activity. Other areas are a bit slower than they have been, but these are coming off incredible peaks and huge activity levels. Its couldn’t have been sustained forever.
“Overall, there’s no denying that the number of transactions made in Perth are down. Some people are holding out for better times. But the number of properties on the market has increased. At the same time, demand has decreased so prices under pressure. It’s economics 101,”
Compton says there’s a mixture of purchasers at present, including first time homebuyers, professionals upgrading and a blend of last time buyers and downsizers.
“Perth is becoming a melting pot for international buyers as well as local investors.”
“Perth is also becoming a melting pot for international buyers as well as local investors. It is in the same timezone as many Asian countries. A lot of Asian students are sent here to study at university. Perth is a good place to live with the clean air and water. It’s not just a mining town. It has a lot of education and tourism facilities.”
Added to that, it is a good place for sporty types. Its western suburbs, for example, have become Olympic athlete havens.
Compton adds: “Buyers are seeing good value in the Perth real estate market compared to a few years ago,” he says. “Some people are saying now may be a good time to get back into the market because it will bounce back eventually.
“Investors are looking for capital growth and they think that will be there. Perth rental returns and yields have slowly come back because the rental market is not as strong as it was. There is at least a 6 per cent vacancy across Perth at present, whereas at the peak of the boom we were almost at 0.9 per cent.”
Perth infrastructure is building optimism
Compton notes that in the inner city, where he does most of his business, there’s a huge amount of optimism about the next two to three years.
“There’s an unprecedented once in a generation level infrastructure development projects underway at the moment,” he says.
First, the new Perth Stadium, with 60,000 seats, is set to open for the start of the 2018 AFL season. Then, Crown Towers Perth has just opened its doors. “It’s a new six star hotel just on the shore of the Swan River,” says Compton.
In addition, the 40-hectare Riverside project will give East Perth a new cosmopolitan waterfront community and tourist destination while the development Elizabeth Quay will result in a newest entertainment and leisure precinct connected by a stunning pedestrian bridge, boardwalks and promenades to new hotels, apartments and offices.
Various new rail links are also under construction. The Forrestfield-Airport Link is a new underground train line that will connect Forrestfield to the city, opening up Perth’s eastern suburbs to the rail network for the first time and improving connections to and from Perth Airport. And the Perth City Link will reconnect the CBD with Northbridge for the first time in more than 100 years.
“By 2020, there will be three new train stations heading out to the airport,” says Compton. “All of these projects will be completed within the next three years. The will result in a better lifestyle and more people wanting to live here. Housing demand will go up and prices will increase.”
He expects Perth property prices to flatten out in 2017. “I think we’ve probably seen the worst of it. We’ve been in a holding position for a while. Prices will be on hold for a little while yet, but once those major projects are finished, the penny will drop for a lot of people. But the smart money will have a longer-term view. I think Perth will be an incredibly exciting place in five to 10 years’ time.”
Compton advises investors to look for properties that are low maintenance and don’t require a lot of upkeep and work. His tip is to buy in Perth’s inner city in the next 12 months. “You will profit in three to seven years’ time without a doubt,” he says.
Investing in property: where do I start?
Before you put your money on the table, it’s important to find out as much as you can about your target property investment and its surrounding areas. What about the property and its location will appeal to potential tenants and make them easy to rent or resell?
Sort out your financial situation and decide whether you are going for a positively geared or negatively geared investment.
In addition to doing extensive research online, visit the neighbourhood and speak to as many people as you can, including the agents serving the area. Questions to ask include where are the best schools nearby, what is the transport like and what future developments could affect the value of the property? Find out which areas are popular with renters and why. Be sure to have data on recent sales in the area and rental yields and rates.