Market Report Western Australia (June 2009)

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After enjoying record gains from booming minerals investment, Perth property prices plummeted over the last year. However, transactions are starting to creep back up bolstering hopes of a recovery.

Despite suffering a drop in value over the past 12 months, the Perth market ended the June quarter on a positive note according to Residex. During the past three months, prices climbed by 2.80% to $475,500 and a healthy 3.95% jump in the month of June.

"While Perth has to year end suffered the largest fall, it is still relatively small and much less than many had predicted," says John Edwards, CEO of Residex. "There was a point during the year where the adjustment did reach a little over 11% but the low interest rates and government incentives saved it from a significant downturn. Perth for the moment has thrown off its correction phase. A truly remarkable outcome given the very significant run-up in prices. While in the majority of capital cities, sales activity did fall away, surprisingly sales activity in Perth was actually better than any other capital city, producing growth of a little better than 6%," says Edwards.

However, BIS Shrapnel analyst Angie Zigomanis, says that even once the resources sector recovers, it may take some time for the property market to catch up.

"Perth prices probably overshot the mark so even if there is a pick up in the resource sector we might find that the Perth market might lag a little bit until the economy catches up to prices," he says. "The last 10% of any boom is really just speculation and I think that's what was happening there."

After years of consistent capital gains, Zigomanis says investors flocked to the property market expecting the same results year after year forgetting the fundamental rule of any investing - past performance is no guarantee of future results.

"There had been four of five years of capital gains in the market and at the end of it people just expected it to keep happening so they were buying in on the basis that that growth would continue," he says. "It was probably evident in Perth where prices peaked at the end of 2006 but the resources boom continued on into 2007 so it gives you an example of how it overshot the mark, price growth had stopped even though the economy was still going great guns."

Those that bought at the peak of the market will be regretting it if they are forced to sell now but if they are able to hold onto their investment it is likely it will still yield decent results.

According to an ANZ housing report, the number of property sales has "wallowed" at low levels for some time but is starting to creep back up bringing hope that median house prices may begin to bottom out. West Australia is lagging behind the rest of the country with finance approvals up only 9% over the past six months compared with 20% for the same period nationwide.

"Of the pickup in demand, again it is first homebuyers leading the way accounting for 48% of mortgage approvals," the report says. The banks says that the introduction of first homebuyers in the market have allowed some Perth suburbs to buck the downward trend and record price gains in recent months showing that even in the worst markets, there are always investment opportunities.

"The Perth housing market as a whole will most likely remain subdued but the return of demand for commodities in coming years will see both the economy and housing market recover well," the report concludes.

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