Property market update: Perth, December 2018

Apart from getting attention from consumers, Perth has also landed on experts’ watch list due to the affordability of housing and the significant improvement in several investment fundamentals, including the increase in population and jobs growth.

Suburbanite’s Anna Porter said: “We've seen that retraction in values is stabilised now and we're not seeing much negative growth coming out of the inner suburban metro areas. The metro areas, that's stabilised now for six to 12 months, which is a great sign.”

The inner city markets and areas around Perth such as Margaret River, Midland and Claremont, in particular, have been performing well over the past 12 months, according to LJ Hooker’s Mathew Tiller. Overall, the dwelling values in Western Australia climbed up by around three per cent.

Northbridge, East Perth and Double View also showed substantial rises in median values in the past year.

In fact, the latest quarterly edition of the Buy-Rent Index found that conditions in the Western Australian capital city are the best they’ve ever been for the last five years as dwellings continue to become more viable to purchase than rent.

“I think it will be a little bit of a better year [in 2019] as long as national trends don’t weigh too much on the states. There’s been a bit more employment growth and a bit more investment in the mine and resource sector, which the WA is heavily reliant on, so the economy is slowly improving over there, which supports the housing market over there.”

“While I don’t think there’s going to be any substantial growth, the market is going to be under better fortune and either will remain steady or slightly improve on the new year,” Mr Tiller said.

Apart from affordability, the drop in vacancy rates and the rise in population are also marked as positive steps forward for the capital city and the entire state.

By the end of 2019, experts predict that Western Australia will present some of the best investment opportunities across Australia.

Property values

During December, Perth’s median house price held steady at $510,000, according to the Real Estate Institute of Western Australia (REIWA). While unchanged in the past month, this price constitutes a 2.6 per cent rise compared to September.

The stability of median prices is an ideal condition for the Perth property market as it transitions towards recovery, according to REIWA’s Damian Collins.

“Median prices provide a good indication of market trends, but it is important to take a closer look at how individual sectors are holding up. For example, although overall sales are down in Greater Perth, [REIWA] data shows that activity in the $800,000+ price range has strengthened.”

The latest quarterly edition of the Buy-Rent Index, a collaboration between REIWA and Curtin University, found that Perth’s median house price is currently the most affordable it has been in six years.

Conversely, the median house rent increased by $10 per week during the September quarter, pushing more people to buy properties instead of renting them.

The declining mortgage rates, with the 10-year average dropping from 7.3 per cent in 1998–2008 to 6.2 per cent in 2008–2018, has also contributed to the rising affordability in the capital city.

Mr Collins said: “The current Perth median house price would only have to increase to $658,000 by 2028 to be considered more financially advantageous than renting. This bodes very well for Perth buyers, considering the 15-year annual average house price growth rate is 5.1 per cent.”

Nationwide, with the exception of the two territories, Northern Territory and ACT, Western Australia stands as the most affordable state to purchase property in, according to the results of the Adelaide Bank/REIA Housing Affordability Report during the September quarter.

Ultimately, buyers and tenants are the beneficiaries of the recovering Perth market, where they can enjoy improved affordability, record low-interest rates and a good supply of housing stock to choose from.

Loans

Over the quarter, the proportion of income to meet loan repayments in Western Australia declined by 1.2 per cent, with the average loan size shrinking by 4.6 per cent to $339,943.

In comparison, the proportion of income needed to make loan repayments in NSW is at 36.6 per cent, with the average loan size of $449,589.

Even if the Sydney property market has started to cool, home ownership remains unattainable due to sky-high prices. In contrast, the dream of owning a property is very much alive in Western Australia, Mr Collins said.

“There is a large proportion of first home buyers that WA has retained despite the challenging market conditions experienced over the last couple of years."

“With housing affordability in WA continuing to improve, West Australians who are looking to buy or rent property should act soon to ensure they reap the benefits of current favourable conditions,” according to him.

Supply and demand

New house approvals have declined to their lowest point since August 2013, according to an analysis of data from the Australian Bureau of Statistics.

In the past 24 months, only over 15,400 houses were approved for building. According to Housing Industry Association’s Diwa Hopkins, this was due in part to a decline of multi-unit homes, which dropped by 18.4 per cent.

Meanwhile, detached house approvals declined by a mere 2.3 per cent, Ms Hopkins said.

Among the states of Australia, Victoria saw the largest dwelling approval fall at 14.6 per cent, followed by New South Wales at 9.4 per cent, Western Australia at 7.3 per cent, South Australia at 4.6 per cent and Queensland at 4.3 per cent.

Tasmania was the only state or territory to record a rise in approvals at a seasonally adjusted 30.6 per cent.

“This weak result shows just how much the current credit squeeze is weighing on the home building sector. The credit squeeze is happening at the behest of the banks’ own lending practices which have been tightened above and beyond APRA’s requirements,” according to Ms Hopkins.

Overall listings in Perth were down by 9 per cent compared to last month, with the suburbs Trigg, Hilbert, Gwelup, Parkwood and South Fremantle seeing the biggest listing drops based on data from REIWA.

Property resales in Perth, meanwhile, follow the numbers of Sydney, Melbourne and Brisbane as the biggest contributors to over $14 billion in profits across Australia. Sydney and Melbourne accounted for 31 per cent and 24.7 per cent, respectively, while Brisbane and Perth accounted for 8.4 per cent and 5.9 per cent, respectively.

Western Australia joins other states, except New South Wales, with rises in new home sales over the past month.

“After a string of weak months, it is pleasing to see new home sales finishing the year on a slightly more positive note,” said HIA economist Geordan Murray.

“The HIA New Home Sales Report shows detached house sales increased by 3.6 per cent in November this year, but are still 12.2 per cent lower than last year.”

Rental market

Western Australia topped the list for rental affordability over the September quarter, with the proportion of income needed to meet median rents falling to 16.1 per cent, lower than Sydney’s 28.5 per cent and Victoria’s 23.4 per cent.

Mr Collins said that the Perth rental market showed significant improvements during 2018. While the upward trajectory is expected to continue this new year, the median rent is likely to remain affordable.

House rents in the capital city increased by 2.9 per cent to $360 per week, while rental yields increased by 1.2 per cent to 4.34 per cent. Meanwhile, unit rents remained steady at $300 while rental yields improved by 2.7 per cent to 4.75 per cent.

According to Domain’s Dr Nicola Powell, Perth house rents have increased annually for the first time in five years, which, as a result, helped drive gross yields higher.

Truly, the rental market of Perth is set for a turnaround.

“While unit rents have remained flat for seven consecutive quarters, this is a marked improvement following four years of weakening prices up until 2017.”

“Demand for rental accommodation will be supported by an improving jobs market and local economy, giving its residents greater incentive to stay and new residents reason to relocate west,” Dr Powell said.

Rental listings in Perth were down by six per cent to 6,865 in December—a staggering 27 per cent lower than they were in 2017.

The reduction in listings, stable rent prices and healthy leasing volumes has pushed Perth’s vacancy rate to 2.9 per cent, the lowest level Perth has experienced since March 2013, Mr Collins highlighted.

Growth drivers

Analysing the data on the Perth property market over the year, Curtin University’s J-Han Ho said that the near future indicated a positive outlook for the Western Australian market.

“Perth’s housing market is very attractive when you consider the cost of housing, distance from the CBD or major activity centres, housing quality and size, and amenities available in every precinct,” Mr Ho said.

“The state government’s international education strategy and graduate skilled migration list that was introduced in 2018, along with changes to immigration policies by both state and federal government in 2019, could be the catalyst for an increase in demand for housing.

“Planned mining investments and retail centre developments should also help to improve employment figures and consumer confidence in WA.”

Propertyology’s Simon Pressley also pointed out other key market conditions that may affect the state and, ultimately, the recovery of the property market moving forward, including surplus budget and jobs growth.

The recent announcement by the Morrison government that the federal will be returning to surplus in 2019 should be music to investors’ ears, Mr Pressley said.

The budget returning to a surplus indicates that the economy is in the best state that it has been in a decade. As one of the biggest influences on the real estate landscape, an economy in good condition could easily mean an equally well-performing property market.

Supplementing the good economy is the continuous jobs growth across states and territories. According to ABS data, Australia has experienced two consecutive years of at least 300,000 jobs.

“I’ve gone back many, many calendar years, and there has been the occasional year in the past where Australia has created 300,000 jobs or more in a year, but I couldn’t find any period where there’s been two consecutive years, with the exception of 2007 and 2018,” Mr Pressley said.

Strong confidence in employment also increases the chance of people relocating to a particular area where jobs are occurring or allow the residents of the area to acquire a job and stay for a prolonged period of time.

Strategy

Despite the positivity across the Perth property market for a significant part of 2018, experts remind investors that the capital city is still on its way to a full recovery from the negative effects of its post-mining boom dive.

Amid a changing market, investors would do well to getting too excited by boom markets or too discouraged by doom-and-gloom headlines because, at the end of the day, success will come down to their personal goals and long-term strategies.

After all, success in property investment is not dependent on market conditions, but on how investors swim through the waves.

Smart Property Investment’s Alex Whitlock said: “I try not to get too excited by boom markets and I certainly don't get too downcast or concerned about flatter markets and even potentially declining markets, as long as I’m well resourced and I have good cash flow for when things are a little bit slower, because it’s about long-term goals and long-term gains.”

Right Property Group’s Victor Kumar and Steve Waters strongly encouraged investors to focus on cash flow management and liquidity to ensure the longevity of their portfolio despite market fluctuations.

By having a stable and secured cash flow, as well as all necessary buffers, investors are provided the flexibility to adjust their strategies and make decisions that are in tune with the market, all without having to compromise a comfortable lifestyle.

“Whether they've come up with it by themselves or whether they've taken counsel, they've kept their cash flow clean and lean, they've got adequate buffers in place in terms of cash flow and capital and they are patiently waiting or the next opportunity."

“It's all coming back to education and better awareness to maximise opportunities,” Mr Kumar highlighted.

Hotspots

Across Perth, there are 10 suburbs that experienced large median price growth in 2018, with Brabham and Madora Bay topping the list, according to REIWA’s Mr Collins.

Brabham’s median price increase by 31.8 per cent from $305,000 to $402,000, while Madora Bay’s median price, with its median lifting by 28.7 per cent to $560,000 during 2018.

Out of the 10 suburbs, Brabham was the only one with a median house price below Perth’s median of $505,000.

Meanwhile, seven suburbs have a median price above $800,000—a positive sign for the property market. These suburbs also experienced faster average selling times compared to the overall Perth market.

Mr Collins said: “While sales volumes in the lower-priced end of the Perth market remains soft, activity in the $800,000 plus price range has strengthened, which has created increased demand among buyers and contributed to the improvement in median house price that we’ve seen in suburbs like Mount Pleasant, Claremont, West Leederville, Kensington, South Perth, Alfred Cove and Shelley.”

“It took an average of 69 days to sell a house in Perth during 2018, whereas in suburbs like Kensington (41 days), Claremont (49 days) and West Leederville (49 days), sellers are securing buyers for their properties a lot faster.”

“Increased demand in Perth’s luxury market is creating more competition between buyers, resulting in quicker selling times and higher sale prices. This data shows that homeowners in these aspirational suburbs who are thinking of selling are well-placed to secure a sale at a favourable price.”

The top 10 Perth suburbs for price growth in 2018, according to REIWA, are:

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