WA Excerpt from the 2011 April Market Report

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Investors are keeping a keen eye on the hotly tipped resources sector, while Perth’s suffering market is ready for a long-overdue recovery.
 
Perth’s been feeling the effects of a surplus of residential property for some time now, says Real Estate Institute of WA (REIWA) president Alan Bourke, but he believes that a recent drop in stock levels will herald a return to a more balanced market in the state capital.
 
“We’re hoping that we’ve now hit the heights of stock levels and that we’re starting to return slowly to what is our equilibrium,” he says. While he predicts that the next year or so will remain relatively flat, Bourke believes that vacancy rates will ultimately drop to a level that will boost yields and entice investors back into the market in increasing numbers.
 
“That will be the important catalyst I think in our market – that the investors begin to look at it and see that they can get a reasonable amount of investor return, and we’ll start to see rental growth,” he says.
 
APM senior economist Andrew Wilson agrees that investor sentiment should start to pick up as the year progresses, noting that a lack of confidence in the Perth property market has really dented its performance of late.
 
“One of the main things that’s affected Perth over the last year is sentiment. The mining tax issue subdued confidence as people were concerned about what might happen. We do think that negative sentiment will moderate over the next year though,” he says.
 
“Companies are shifting in workers over seven-day periods then taking them back to Perth. Virgin Blue and Qantas have been investing in regional airlines as they expect this to grow. That’s likely to lead to increased pressure on accommodation in Perth – and it’s well and truly due,” he adds.

Reason for optimism then, but Residex CEO John Edwards advocates sitting tight for now as the surplus figure is sitting between 4,000 and 8,000 properties, so “there’s probably more adjustment to come” while that figure comes down.

And it would seem that sitting tight is exactly what Western Australian investors are doing if CommSec’sState of the States report is anything to go by. CommSec found that WA is the second-weakest state or territory for housing finance, with commitments sitting at more than 20% below the decade average for the state.

“WA is the next weakest (the Northern Territory being the weakest), confirming that the housing market is acting as a braking force on the broader WA economy,” writes CommSec chief economist Craig James in the report.

High-end property suffers 

Perth’s current situation has hit the top-tier of the property market hardest, says Bourke, noting that – for those that can afford it – there are tremendous buying opportunities in the $2m-plus market.

“There’s just so little demand in that end of the market,” he says. “There’s fantastic buying, because people have dropped their prices by 30% and still can’t get a sale. So it’s a great opportunity to buy, but it’s certainly very quiet at the moment.”

Raine& Horne CEO Angus Raine adds that esteemed suburbs such as “the Applecrosses of this world” have been severely affected.

“I think it’s fair to say that the prestige end of the Perth market has certainly stalled,” he says.

To take Applecross as an example, its units have taken a big hit, with a 26% drop in median price over the past 12 months, according to RP Data. Its houses, however, fared a lot better over the same period with 13% growth.

“The darlings of the property market in previous years such as Mandurah and the southern areas have certainly been hit hard,” adds Raine.
 
Interestingly though, NAB’s quarterly residential property survey found that Mandurah’s ‘darling’ status has been maintained, with investors tipping the suburb to see decent capital growth this year. The survey, whose participants include real estate agents, property developers, asset managers, investors and home owners, put Mandurah in the list of Australian suburbs that are expected to see the fastest capital growth this year – despite annual growth for houses only coming in at 1% over 12 months, according to RP Data.

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