Property market update: Perth, February 2019

According to Momentum Wealth’s Emma Everett, affordability and potential long-term benefits attract investors to the Western Australia capital.

“Whilst both markets offer strong levels of affordability compared to Sydney and Melbourne, they also hold promising opportunities for long-term growth, with Brisbane already experiencing overall price growth and areas of Perth performing strongly as the market enters its recovery,” she said.

Perth also saw a significant improvement in consumer confidence, with 70 per cent of WA investors saying that they consider Perth as the most appealing capital city for investment.

As a result, property values have been showing impressive growth in select areas.

Ms Everett said: “Perth is offering some great buying opportunities for investors looking to take advantage of current levels of affordability, but those looking towards high-demand suburbs will need to move quickly or risk entering the market when competition levels have already picked up,” she said.

“We are already seeing significant evidence of this in some areas of the market, with increased activity from trade-up buyers resulting in significant price growth in Perth’s central sub-region across the past 18 months,” she said.

Despite the growth potential in the Perth property market, Ms Everett still encouraged investors to do their due diligence in order to mitigate risks.

After all, Perth, like Brisbane, is still a largely recovering market.

“In these early stages of recovery, it’s not uncommon for different areas of the market to experience price growth at different times, so investors will need to remain diligent in their research to ensure they are selecting an area that aligns with both their investment strategy and growth expectations.”

Property value

During the final week of February, capital city values declined in most capital cities, with only Adelaide holding steady.

Perth saw the largest decline at 0.4 of a percentage point, followed by followed by Sydney with 0.3 of a percentage point, Brisbane with 0.2 of a percentage point and Melbourne with 0.1 of a percentage point.

“The national rate of decline eased relative to January and December, when dwelling values were down by around 1 per cent. However, the February results remain overall weak, with the geographic scope of negative conditions broadening,” according to CoreLogic’s Tim Lawless.

“The fact that we are seeing weakening housing market conditions across regions where home values were previously rising at a sustainable pace and where economic conditions are relatively healthy is a sign that tighter credit conditions are having a broad dampening effect on buyer activity.”

Perth’s median property value currently sits at $439,952, cheaper than Sydney, Melbourne, Brisbane and Canberra and more expensive than Darwin.

Supply and demand

Similar to property values, listing fell in most capital cities this February, with only two capital cities bucking the trend – Hobart and Darwin.

Houses remained more popular than units, with the average time on market for houses mostly declining. Hobart recorded with the fastest time on market for both houses and units at 37 days, while Darwin recorded the slowest days on market for both houses and units at 99 days and 174 days, respectively.

Vendor discounting was between 4.9 per cent and 8.6 per cent for houses and between 6.1 per cent and 7.6 per cent for units, with Canberra as the low-end exception for both houses and units, Darwin as the high-end exception for houses and Perth as the high-end exception for units.

CoreLogic’s Cameron Kusher said: “The most prominent price point for sales was $400,000 to $600,000, while there were more sales of at least $1 million than there were below $200,000 or between $800,000 and $1 million.”

Perth, in particular, have seen more property sales in the below-$200,000, over-$1 million and between $200,000 to $400,000 brackets over the last 5 years, with the $200,000 to $400,000 seeing the largest increase at 30.7 per cent.

Rental market

As Perth’s overall weekly rent held steady at $350 a week, leasing activity rose by 6 per cent in February.

The Real Estate Institute of Western Australia (REIWA) found that only 37 suburbs saw rises in median rent, including Cottesloe, Shenton Park, Kingsley, East Fremantle and Redcliffe, while 75 suburbs saw rises in leasing activity, including Bull Creek, Queens Park, Parkwood, Wilson and Willetton.

“Perth’s overall median rent has been stable for an unprecedented amount of time. With an increasing number of suburbs starting to see rents increase, it’s only a matter of time before the Perth median rent follows suit, which will be a welcome development for landlords,” REIWA president Damian Collins said.

“As we head into March, which is traditionally one of the busiest months of the year for the rental market, we should see tenant activity continue to build, creating more competition in the market and putting upward pressure on rents,”

Gross yields also improved across most capital cities, except Hobart, sitting at 3.81 per cent for the last 12 months to February 2019.

Strategy

Like most property markets, Perth has also been affected by the tightening of the lending environment, with investors being negatively impacted by changing restrictions and rising interest rates.

As such, experts strongly encouraged capital city investors to focus on risk mitigation in order to be able to ride the waves and ultimately thrive amid fluctuations in the market.

According to Right Property Group’s Steve Waters: “The very first thing I’d do is be liquid. It’s not just risk mitigation for you, but it’s your opportunity to execute opportunities, so to speak. Investors with the most cash will always do well.”

“I’d also be looking for diversification. So, if I’ve invested in Sydney during the last cycle, then I perhaps consider moving to Brisbane or potentially entertain the idea of investing in some areas of Perth,” Mr Waters highlighted.

Larger blocks that can be split offer good long-term opportunities, while units may not be as good an investment due to the possibility of oversupply.

Take time to review the existing and upcoming infrastructure in the area, too, he said, as these could affect the value of the properties in the area.

Mr Waters also advised investors to keep close to the CBDs where significant migration and population growth are sure to support the property market.

Overall, investors must keep a long-term view to maximise the opportunities in the market.

“Don’t look for quick wins because that’s pure speculation – you may as well go to the casino.”

“You need something that’s a fundamental, something that’s going to give you ample cash flow. Cash flow management is king because you can have all the cash flow coming in, but if your expenses aren’t in check, then you sustain a negative impact on your portfolio,” Mr Waters highlighted.

Hotspots

During February, as sales record are dominated with properties in the $500,000 bracket, the suburbs of Baldivis, Morley, Willetton, Canning Vale and Dianella emerged as the most popular areas in terms of sales.

“Almost half of all transactions occurred below $500,000 in February, which is a trend we’ve observed for the last three months,” Mr Collins said.

Karrinyup, Bayswater, Hamilton Hill, Sorrento, Aveley, Waikiki, Tapping, Morley, Ocean Reef, Mullaloo, Yangebup, Rockingham and Greenfields also saw rising popularity through increasing sales activity over the month. Eight of these, excluding Karrinyup, Bayswater, Sorrento, Ocean Reef and Mullaloo, have median house prices below the Perth median.

However, despite sales records rising in the lower end of the market, the fastest selling suburbs are still found in the higher end.

The 10 fastest selling suburbs over the month of February are Duncraig, Willetton, Palmyra, Doubleview and Padbury, Woodvale, Scarborough, Ocean Reef, North Perth and Sorrento.

“Seven of these fastest selling suburbs have median house prices above $600,000, which indicates buyers are needing to act quickly in Perth’s trade-up and luxury markets to ensure they secure the property,” Mr Collins said.

Apart from the said suburbs, Yanchep has also been displaying good potential for higher yields and overall profitability.

As of the December 2018 quarter, the suburb has recorded a 2.8 per cent vacancy rate – a five-year low.

According to Capricorn Beach Estate’s Richard Cull, vacancy rates under 3 per cent typically translates to upward pressure on the rental market.

“Rental yields in Perth are now starting to rise and the latest CoreLogic figures for December 2018 shows that rental yields in Perth are now 4.1 per cent, which is now much higher than Sydney at 3.3 per cent and Melbourne at 3.5 per cent.”

Rental demand is expected to rise even more following the completion of several infrastructure projects such as the Yanchep to Perth railway line, an upcoming shopping centre and tavern precinct, as well as the completed secondary college that opened last year to complement Yanchep Beach Primary School.

“In property hot spots such as Yanchep, astute investors can achieve rental returns of at least 5 per cent.”