Market Report – Western Australia (May 2008)

Perth real estate takes a step back while the resources boom keeps pushing regional WA from strength to strength.
The Western Australian economy is as strong as ever and the insatiable global demand for the state’s natural resources, especially from China, shows no sign of slowing… yet. But all good booms must come to an end, and the Perth real estate market, having been through a period of unprecedented, frenzied growth in recent years, is taking a breather.
“The Perth residential property market continues to slide into a correctional phase,” says Andrew Donnelly, CEO of Braxton Chase. Donnelly adds that although Perth prices are slipping, “the market remains buttressed by resources growth, meaning price drops may not be as severe as, say, the drops experienced following the market peak in Sydney in 2003–04”.
According to data from Residex, Perth house prices grew a mere 4.62% in the 12 months to January, only just outpacing inflation. Units fared slightly better, rising 6.46% in the same period. In the three months to January, however, house prices crept up just 1.12% while unit prices fell 1.21%.
These less-than-impressive capital growth results, driven in part by the relentless march of rising interest rates, do have a potential upside – the revival of rental yields.
“Capital growth may have been all the rage in Perth in recent years,” says Donnelly, “but yields have been a paltry affair. In fact, Perth lays claim to having some of the lowest yields in the country.”
He adds that “first homebuyers facing sky-high prices and rising interest rates will undoubtedly stand back for a while, keeping a lid on capital growth”. Donnelly predicts that investors will now be watching closely to see if rental returns start moving in the right direction.
As at January 2008, Perth houses are yielding 3.37% while units are offering 3.99% – the lowest of any capital city in the country.

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