Property market update: Perth, August 2020

MaxCap Western Australia’s investment director Ben Jones said: “MaxCap is very pleased to be providing the construction funding for Iris Residential on their exciting One Mabel Park development. Tailored towards the owner-occupier market and commanding attractive lake and parkside views, we expect this project will continue to command strong levels of purchase demand given its desirable attributes.”

There are a number of encouraging signs in the Perth residential property market which are positioning Perth for growth, including a compressing residential vacancy rate which now sits at low 1.6 per cent, according to August data from the Real Estate Institute of Western Australia (REIWA).

Additionally, there are several state government stimulus packages specifically targeted towards housing and construction, as well as an improving state net migration due to travel.

Perth also continues to see a performing resources market, which ultimately aids jobs growth and wealth creation.

Property values

Data from the Real Estate Institute of Western Australia (REIWA), Perth’s median house price remained stable at $475,000.

On an annual basis, prices lowered slightly, with the median house price only 2.3 per cent lower than it was last year, according to REIWA president Damian Collins.

CoreLogic’s findings, meanwhile, showed Perth house values marginally declining by 0.6 per cent during the month.

“Although Perth’s overall median house price remained stable in July, reiwa.com data shows one in three suburbs recorded an increase),” Mr Collins said.

“East Fremantle saw the biggest growth in median house price for the month with a 4.8 per cent increase, this was followed by Pinjarra (up 3.3 per cent), Rivervale (up 2.9 per cent), Forrestfield (2.7 per cent) and Yangebup (up 2.5 per cent).”

Since March, Australia’s capital cities have had mixed results from the fallout of COVID-19, with some benefiting while others suffer, according to CoreLogic.

Melbourne property values fell 3.5 per cent, while the ACT dwelling market reached a record high. From June to July, the rate of decline eased across Perth, from -1.1 per cent to -0.6 per cent, but deepened across Melbourne and Sydney.

CoreLogic’s head of research Eliza Owen said: “Looking forward, there are a variety of factors that will influence the outlook for home values. Of immediate concern is the steepening curve of the virus in Victoria. Considering Victoria accounts for around one-quarter of the nation’s economy, the stage 4 lockdown has already dampened both consumer and business sentiment nationally and the interruption to economic activity will deepen and lengthen Australia’s recession.”

According to her, even with government support of around $18 billion a month, cities where labour markets are more impacted are also likely to underperform, as will those with more significant exposure to overseas migration as a source of housing demand.

Rental market

Leasing activity in the Perth metropolitan area declined 9 per cent over the month, but lifted 13 per cent in the three months to July, REIWA found.

Although leasing volumes were down last month compared with July, tenants remain very active right now, as listings for rent have decreased 7 per cent compared with June and 48 per cent compared with July 2019, Mr Collins explained.

Among the top five suburbs set to see an increase in leasing activity growth based on REIWA data are Leeming, Victoria Park, Stirling, St James and Halls Head.

In terms of pricing, Perth’s overall median rent price was stable over the past quarter, holding at $350 per week.

Looking into houses and units, this broke down to $370 per week for houses and $340 per week for units.

According to reiwa.com data, Applecross saw an 8.2 per cent increase to $595 per week, which was followed by South Perth (up 4.2 per cent), Wellard (2.9 per cent), Cloverdale (up 2.9 per cent) and Belmont (up 2.9 per cent).

“With the WA property markets returning towards normality, now is the time to consider the current emergency period tenancy legislation for residential and commercial properties and allow it to end at the current proposed time of 29 September 2020,” Mr Collins highlighted.

Over the months, Perth’s vacancy rate has also dropped to its lowest level in 12 years, according to date from REIWA, which showed that the vacancy rate for WA’s rental market dropped to 1.6 per cent, the lowest it has been since March 2008.

While the capital city has maintained a healthy vacancy rate of around 3 per cent for 21 consecutive months, having it sit below 2 per cent indicates that Perth is starting to see the impact of limited stock.

As a result, rents are likely to rise over the coming months, according to Mr Collins.

CoreLogic’s report showed gross rental yields of 4.3 per cent and 5.2 per cent respectively for houses and units in Perth, which are considerably higher than the combined capital city averages of 3.3 per cent and 3.9 per cent.

“While yet to translate into significant investor activity, we’re already seeing increased buyer demand from first home buyers and owner-occupiers off the back of government stimulus, with a number of areas showing leading growth indicators in the form of shorter days on market, lower stock levels and high online property views,” Momentum Wealth’s residential investment committee chair Emma Everett said.

Supply and demand

Perth saw a 19 per cent increase in sales activity over the week ending 23 August, proving that the local property market is gearing up for its spring selling season, according to REIWA.

Looking closer, there was a 14 per cent rise in house sales, while unit sales were up by 39 per cent and vacant land sales saw a 26 per cent increase.

According to Mr Collins: “Whilst sales activity was quiet during the initial stages of the COVID-19 lockdown restrictions, it is great to see levels pick back up to where they were before the pandemic hit”.

“While there are no surprises with the increase in land sales for the month, which saw a 121 per cent increase compared to April, it was pleasing to see that both houses (up 58 per cent) and unit sales (up 51 per cent) also saw a significant increase.”

Despite the increase in transactions, house listings are down 2 per cent on the week prior, which was offset by 2 per cent increases to unit and vacant land listings. This was a slight improvement on July’s listings, up 1 per cent across all three categories of property.

In terms of auctions, CoreLogic’s Auction Market Preview said there were 1,064 capital city homes taken to auction over the week ending 23 August, a very slight increase on the 1,046 auctions held the prior week. Of the 1,057 results collected, 60 per cent were successful, up on the 58.4 per cent success rate the previous week

“Both volumes and clearance rates across the combined markets have remained relatively steady over the past month. While Melbourne’s lockdown has resulted in fewer homes taken to market and less successful results, this has been somewhat offset by an increase in volumes and clearance rates across Sydney,” CoreLogic said.

Expert advice

Property investors in Western Australia are urged to be vigilant as the Western Australia state government rolls out a $20,000 grant for property investors who built a new house as part of its $117 million “Building Bonus” scheme.

According to Property Club national manager Troy Gunasekera, while the grant is welcome for property investors, “they still need to exercise caution in signing up for a new house before the $20,000 grant expires before the end of the year”.

“They could be chasing fool’s gold if they did not undertake careful research before making a decision to buy a property in Western Australia,” he said.

Mr Gunasekera’s top tips for avoiding falling into the trap of fool’s gold are:

1. Don’t buy property in mining towns

“The resources sector in Western Australia is now booming again because of surging commodity prices. This has seen demand for housing in mining towns rise over the past year and, as a result, house pricesr,” the national manager said.

“It is no surprise that the best-performing area in Western Australia at the moment is the mining town of Newman, with a 25 per cent annual growth in house prices.

“History shows that these areas are very high-risk and unsafe for investors because when the mining sector booms, the value of homes in these mining towns surge, but collapse very quickly when there is a downturn in the mining sector.”

2. Take a long-term perspective to buying an investment property

“While the $20,000 grant for investors is attractive, property investors need to take at least a 10-year perspective to buying an investment property. A difference in just 1 per cent performance in your investment property compared to the overall property market can mean thousands of dollars in capital growth or loss over a 10-year period,” he said.

“Before buying a property, search the overall capital growth rates for that area over the past 10 years. For example, while the median price of home in Newman jumped by 25 per cent over the past year, during the past 10 years the annual median price in the town has declined on average by 9.3 per cent per annum.”

3. Consider the infrastructure

“New infrastructure can play an important role in driving future capital growth of an area. For example, property investors should look at new capital expenditure planned by state government in Western Australia on transport. This includes new train links and road to outer suburbs, making commuting time faster to employment hubs,” Mr Gunasekera said.

“This new transport infrastructure will also make homes in these suburbs more desirable. Renters favour areas with good levels of transport infrastructure. Property Club is finding strong demand for standalone houses in Perth, and improving transport facilities will boost rental returns even higher.

“A major trap for investors is to buy new homes in outer suburbs which have poor transport infrastructure and then are often forced to sell later at a loss because of a lack of demand for these homes. So, property investors should only focus on areas where there are good levels of transport infrastructure or newer areas where major transport links are planned in the next few years in Perth under the ambitious state government METRONET transport program.

“The rental market in Perth is now running hot with very low vacancy rates. However, like capital growth rates, well-informed investors will achieve above-average rental returns if they choose the location of their investment property carefully.”

4. Look into proper property management

“When you have selected a suburb, don’t make an emotional decision when choosing a specific home. Most first-time investors purchase a property they would like to live in. It is important to remember that the investment property must appeal to a tenant who will be paying the rent,” he said.

“One of the biggest mistakes first-time property investors make is to try and manage the property themselves.

“This is the number one reason why many first-time investors never go onto buying a second investment property because they select a poor-quality tenant without undertaking the necessary background checks. Selecting a poor-quality tenant can result in thousands of dollars of lost income and damage to the property. This is a big financial setback that many first-time investors cannot recover from.”

Hotspots

According to REIWA data, five areas saw particularly strong sales activity over the month, including:

1. Byford: up 92 per cent.

2. Port Kennedy: up 88 per cent

3. Quinns Rocks: up 50 per cent

4. Heathridge: up 42 per cent

5. Banksia Grove: up 38 per cent

Further, the western suburb of Jolimont, Perth is expected to benefit from the One Mabel Park development, which comprises 46 boutique apartments over six levels designed to capitalise on attractive vistas over Henderson Park Reserve Jolimont Lake and the Perth City skyline.

The development is positioned within close proximity to a full suite of retail amenities, public transport, sporting facilities and recreational park reserves.

According to MaxCap Group, the project is located in the “highly desirable, established residential suburb” of Jolimont, centrally positioned between Perth City and its beautiful beaches.

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