Property market update: Perth, February 2020

 

After a long period of stagnation, the Perth property market has started to show green shoots of recovery. Will the Western Australian capital be able to sustain growth long enough to benefit investors in the long term?

Perth, along with Brisbane, garnered the highest level of interest from investors based on the survey conducted by property investment consultancy Momentum Wealth, which collected responses from over 400 investors across Australia.

Overall, 68 per cent believe that it is still a good time to dive into the housing market right now – a significant increase from last year’s 53 per cent and the year prior’s 44 per cent.

Investor interest remained highest in Perth and Brisbane, with 37 per cent and 26 per cent of respondents respectively choosing the capital cities as the best locations to invest in the next 12 months.

Team leader of Momentum Wealth’s buyer’s agents Emma Everett said that the relative affordability and growth opportunities in both Brisbane and Perth are likely to be the primary drivers of continued interest in their property markets.

“While Brisbane’s property market has been recording steady growth for some time, continued improvements in rental conditions and a significant tightening of stock in Perth’s housing sector are now driving the consensus that the property market is moving into recovery phase, with savvy buyers realising the counter-cyclical opportunities at hand,” Ms Everett highlighted.

“Investors are also recognising the value for money these markets offer, especially in comparison to places like Sydney where prices remain significantly overvalued and affordability constraints are pushing buyers out of the capital city market in favour of regional or state alternatives.”

According to Ms Everett, a number of factors are contributing to a strong long-term outlook for Perth’s residential housing sector, including growth in population and the mining sector.

“While we’re already seeing early improvements across Perth’s rental and capital markets, rising activity in the mining sector, increased infrastructure spending and early signs of accelerated population growth are providing strong indicators for the market’s future performance,” she said.

Moving further into 2020, Perth’s median house price of over $500,000 should be able to provide investors and owners with value gains of 5 per cent in 2020, based on Domain’s Property Price Forecasts for February 2020.

In 2021, the Western Australian capital may experience a further 3 to 5 per cent improvement to prices.

Still, Right Property Group’s Victor Kumar reminded investors to be cautious and do due diligence before investing in the Perth property market.

“We have been buying strategically in Perth for a little while, but it is not a market for the uneducated, given prices remain more than 20 per cent below their peak, with different suburbs all at different phases of recovery, with some still falling,” he said.

Property values

CoreLogic’s February 2020 Home Value Index has found a rebound in the pace of capital gains across the Australian housing market throughout the month, seeing the national index rise by 1.1 per cent.

The strongest capital gains were recorded in Sydney, at 1.7 per cent to $872,934 and Melbourne at 1.2 per cent to a median house value of $689,088, followed by Brisbane ($503,265), Canberra ($631,862), Hobart ($488,968) and Adelaide ($439,453).

For Perth, a 0.3 per cent increase in dwelling values reported for the month is being flagged by CoreLogic as “evidence that the long-running downturn is over”. It’s the Western Australian capital’s fourth consecutive month without a value drop, bringing values to a median of $442,691.

However, despite values now trending higher, “the recovery period is likely to be a long one, with Perth housing values remaining 21 per cent below their peak”, according to CoreLogic’s head of research Tim Lawless.

Darwin was the only capital not to record a rise in values over February, with values down by 1.4 per cent, and 1.8 per cent for the quarter, bringing the median house value to $386,345.

For those looking for more affordable entry points to the property market, Mr Lawless suggested narrowing down the property search by examining lower quartile values.

The lower quartile – or the most affordable 25 per cent of properties in a region – would provide a better view of the market entry point, according to him.

Taking this into account, Mr Lawless said some areas that might seem out of budget based on the median value “may actually offer up some opportunities if buyers are willing to target properties at the lower end of the value range”.

While Perth is already one of the most affordable capital cities in terms of median housing values, its lower quartile values sit at an even lower $358,790.

According to analysis, every subregion of Perth shows a lower quartile value under $400,000, except for the inner subregion, where the lower quartile value is up at $906,900 – more than double any other subregion.

Supply and demand

The week ending 1 March 2020 saw Australian capital city auction volumes reaching their highest levels since late November 2019, according to CoreLogic’s latest auction market preview.

With over 3,000 homes taken to auction, a success rate of 73.9 per cent was achieved.

“The last time the final weighted average clearance rate maintained [such] strength across such a high volume of auctions was back in early 2017,” it revealed.

Breaking down the results by capital cities, Melbourne recorded its busiest week since March 2018, with 1,612 auctions reported. It returned a final clearance rate of 74.8 per cent.

Sydney was crowned the title of “best-performing capital city auction market” last week, returning a 76.6 per cent final auction clearance rate from 1,087 auctions. It was a stronger clearance rate than the week prior, where 963 auctions returned a clearance rate of 74.5 per cent.

It was a mixed bag of results across the smaller cities, with the ACT unsurprisingly offering the highest clearance rate.

Canberra saw a clearance rate of 69.5 per cent, followed by Brisbane at 60.5 per cent and Adelaide at 56.4 per cent.

Finally, 29.4 per cent of auctions in Perth found buyers.

According to the Real Estate Institute of Western Australia (REIWA), the lower number of sales recorded can be attributed to a 20 per cent decrease in house sales, 29 per cent less unit sales and a 10 per cent decline in vacant land sales. The decline is despite a slight increase in listings.

Breaking down the statistics by property type, a 2 per cent increase in listing stock was observed for houses, while listings for units also increased by 1 per cent. A simultaneous 1 per cent decrease in vacant land listings was recorded.

Despite the near-term gain, the REIWA highlighted that the listings volume is down by 26 per cent on the same period last year.

Meanwhile, rental listing volumes are also down on last year’s results, a 16 per cent decrease on listings from this time last year.

There are currently 5,573 properties up for rent in Perth and just 780 properties leased across the capital city.

Growth outlook

Money has started to move from the east coast to the west as the western property market witnesses recovery, according to a previous Domain study.

According to the study, Perth is likely to see its fastest growth since the mining boom in 2014, which is welcome news for investors who have bought and held during the boom.

The median house price should be $564,000, which, while higher than the current median value, is still 8 per cent below its previous peak.

To take advantage of the potential for future upswings, Property Club president Kevin Young encouraged investors to buy homes in areas where new schools are in the pipeline.

According to Mr Young, “The connection between good schools and rising property values has been a proven fact over many years.”

Research from the University of Melbourne found that a top public school can add 3.7 per cent to the value of a property in the school’s local catchment area.

Additionally, Property Club research also revealed that tenants with children are “keen to live in catchment areas with good public schools”, Mr Young said.

Homes in these areas could command an additional 10 per cent weekly rent compared with surrounding suburbs outside the catchment areas, so property buyers are encouraged to focus on identifying areas where major new school investments are set to occur.

One such example is the opening of Perth suburb Subiaco’s $70 million Bob Hawke College last month.

The facility has a 150-seat lecture theatre, modern library and multipurpose indoor sports hall, with Mr Young noting that the school will cater for 2,000 students by 2025.

“The catchment area for the college contains areas that are still relatively affordable and will benefit hugely when this college becomes fully operational,” Mr Young highlighted.

“With the start of a new school year, it is timely that property buyers throughout Australia start to target areas where the government is going to invest significant amounts of money in new educational facilities, which will boost the future demand for housing in these areas over the coming years.”

Hotspots

Results from InSynergy Property Wealth Advisory identified Brisbane, Adelaide, Canberra, Perth and the Sunshine Coast are locations that could see strong price growth this year.

Each location has been picked because they had strong market fundamentals that would lead to property price performance in the years ahead, InSynergy chief property investment adviser Richard Sheppard said.

Over the next six to 10 years, the most robust markets could rise between 80 and 120 per cent, while also returning higher yields at the start of each cycle, he said.

On the other hand, the worst-performing markets could see prices slide by up to 20 per cent over the same period.

Mr Sheppard believes prices will start to firm in these locations sooner rather than later.

Among the expected drivers of growth is the development of over 60 hectares of land for a new coastal community in the outer suburbs of Perth.

A statement from the government of Western Australia has said that subject to development approvals, approximately 900 residential lots ranging from 180 to 600 square meters are to be developed in the coastal suburb of Port Kennedy from Crown land over the next decade.

Approximately 55 kilometres south of Perth, the suburb is located on the coast within the City of Rockingham.

The project is set to deliver 400 local jobs and $15 million in public works through development of the lots and associated community infrastructure, as well as see Port Kennedy’s retaining and improvement of an existing golf course and development of a new main street and town centre comprising of offices and shops.

According to planning minister Rita Saffioti, “We must plan for future employment and infill development opportunities that are close to public transport and are where people want to live, in growing suburbs like Port Kennedy.”

The agreement “will allow for the development of new community facilities, provide greater choice of housing type and bring a welcome boost to the local economy”, she said.

Lands Minister Ben Wyatt said the long-awaited project “will not only revive the coastal landscape of Port Kennedy, but will create much-needed community infrastructure and local jobs for the area”.

The first stage of development will see two road access points developed for emergency fire response and the creation of a new north-south coastal road, while Kennedy Bay’s first lots are expected to be released in early 2022.

Public commentary on a local structure plan will be invited in the coming weeks before final approval is sought from the Western Australian Planning Commission.

A number of infrastructure projects will also be established in Perth over the next five years as part of the local government’s METRONET project, which will see the creation of up to 18 new stations across the Perth metropolitan region.

The first stage of the project includes the development of three new stations under the $1.86 billion Forrestfield-Airport Link.

Previously overlooked suburbs, like Forrestfield, are set to benefit from these projects.

“For a suburb like Forrestfield which has always been on the fringe of the Perth greater region, having a direct transport route between Perth’s airport and the CBD could be a major drawcard for city and FIFO workers, in turn promoting a new wave of buyer demand,” Momentum Wealth’s research adviser Shaun Strickland said.

“Investors who enter these suburbs at the right time have the opportunity to leverage the relative affordability of these areas before buyer competition starts to place upwards pressure on property values.”

Infrastructure upgrades such as new transport links can provide an important catalyst for capital growth due to the increased accessibility and amenity they bring to a suburb, both of which can help drive higher levels of demand from buyers and renters, according to Mr Strickland.

Source: SmartPropertyInvestment