Investors are back in town
A rise in interest rates has given investors confidence to return to the WA market.
In 2006, after a period of crazy capital growth, many investors moved away from Perth and looked towards Melbourne and Adelaide. However, following a rate rise and increased consumer confidence, investors are returning to the city. "With the interest rates dropping, people were holding on to their properties," says Katie Lucas, Century 21"s state manager for Western Ausralia. "Now they are starting to go back up, I think we will see more people selling and investors coming out."
Lucas says the areas that have shown most promise are those close to the CBD, near wealthier suburbs. "We"re seeing houses in older suburbs such as Gosnells, Heathridge, Belmont, Bentley and Carlisle become popular with investors, who rent them out and develop them at a later date," says Lucas. "I think investors are being smart and looking at areas that have taken off and then looking at neighbouring areas."
Perth"s median house values rose 1.4% to $482,500 over the September quarter according to Residex. Unit values rose by 4.91% to $389,500 as buyers snapped up affordable offering.
The shortage of stock that has plagued the country remains a particular problem in Perth and while new property is being built, it is not enough to meet the demand - particularly in the north-western parts of WA. "We have a lot happening with our mining industry, particularly up north with the Gorgon LNG project," says Lucas. "That"s really going to affect us - when our mining industry was going crazy three years ago with demands from China, it really pushed the market forward."
First home buyers have flooded the Perth market in the last 12 months but following the reduction of the First Home Buyers Grant boosts at the end of 2009, there is likely to be a softening in the first homebuyers market. The government"s decision to reduce overseas migration intake is also expected to affect WA more than any other state according to QBE LMI report. Overseas migration into WA is expected to ease to 21,600 persons in 2009/10, down from a record 37,700 over the previous year.
While there are now a growing optimism in this market, John Lindeman of Residex urges investors to be cautious when investing in this market.
"Perth depends very much of immigration and opportunities," he says. "Unemployment has sky rocketed in WA - only two years ago it had the lowest rate - so things aren"t looking all that rosy. If the population growth continues, it will put pressure on the housing market and we"ll see increase. However, historically we"ve seen that population growth dies away very quickly."
Lindeman says it is a similar story in Western Australia"s north western markets. "It has the highest population growth rate but the economy is in a lot of trouble because of the collapse of the mining boom and it"s more vulnerable than say, Queensland, which could export coal," he says. "A lot of the mineral exports from WA have been cut back and the state is very much reliant on that - that will effect the population growth as a lot of workers come from overseas."
Lindeman says the LNG plants will help the economy but that impact won"t flow into the housing market as a lot of companies provide subsidised accommodation. "There was a time - 2006 and 2007 - when people were living in caravan parks paying $1000 a week rent but that time has gone," says Lindeman. "Those sort of bubbles don"t occur that often and they take a long time to build up again. I think a lot of those places [that have been affected by the mining boom] will go back to sleepy hollows as they were before."
However, Lindeman says the south east corner of Wester Australia is performing very well. "WA country will see real reductions over the next few years. Having said that, the south east corner, such as Bunbury and Albany will do quite well," he says. "There will be good capital growth because a lot of the WA retirees will move to that area."
Outlook for 2010
The medium term outlook for the WA economy is not as negative as it was in 2008 according to the QBE LMI report. "The fundamentals will still support further oil and gas investments with construction of more LNG trains and oil and gas fields limiting the magnitude of the decline in resources investment over the next few years. Perth"s median house price is forecast to increase modestly by 2% over 2009/10."
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