WA Excerpt from the 2011 August Market Report

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Savvy property investors are really making the most of Perth’s buyer’s market, says Property Wizards’ director Liz Sterzel.

“The market has been in a lull and is really just skipping along sideways, but it is booming in the domain of switched-on, cashed-up investors who are honing in on the great buying opportunities out there,” she says.

“They’re fast snapping up well-priced properties, particularly those with add-value potential, and are getting in at prices which are lower than last year.”

She adds that, with buying activity being somewhat subdued at the moment, it’s the long-term Perth investors with intimate knowledge of its property cycle that are making the most of the city’s excellent buying conditions.

“They understand where the cycle is at and know that when it turns, they’ll have a lot to gain, because when other buyers come back into the market, prices will be driven up once more,” she says.

“Several investors with self-managed super funds are also taking advantage of this window of opportunity.”

And with investors only accounting for 9% of sales rather than the long-term average of 25%, according to REIWA figures, now’s a good time to be making the most of the lack of competition for prime investment properties.

The cash flow equation 

What Perth’s investors are looking for, says REIWA president Alan Bourke, are $300,000–$450,000 properties around 10km from the CBD with strong rental yields.

“It’s not unusual to buy a $300,000 property and rent it for $300 a week,” he says. “That goes a long way to paying off the mortgage, so investors are looking for almost break-even investments.”

And he predicts that, with the city’s rental vacancy rate coming in at close to that 3% mark at which rents start to get pushed upwards, the investor share of market activity will start to creep back up towards its long-term average.

“Rents have been flat for two years because our vacancy factor has been high,” he explains.

“But it’s come back to 3.1% so we’ll start to see some rental growth.”

A comeback’s overdue 

While Perth’s capital growth isn’t anything to shout about at the moment, Property Power Partners chief property analyst John Lindeman believes that the future’s bright for the Western Australian capital.

“In the last five years, the population of Perth has grown by 250,000 people without any real increase in house prices, and my view is that a rise is well overdue,” he says. “With that sort of population growth rate, it’s just a case of when.”

He adds that, with the city’s rate of construction now matching up to demand – rather than exceeding it – this is one city whose prices are ready to grow.

However, with Perth still working its way through its current oversupply of stock, Sterzel believes that it will remain very much a buyer’s market for the next year or so.

“The market will slowly return to normal over the next 12 months as WA’s new resources boom kicks up a notch and brings fresh workers to the state – a trend that will see the current excess stock get soaked up,” she says.

In the meantime, Bourke notes that the majority of Perth’s buyers are now upgraders who are using the equity that they built up in their homes during the pre-GFC boom to fund the purchase of an excellently-priced larger property.

“The trade-up buyer is the major buyer in the market – about two-thirds of all sales.

They’re realising that the top end of the market is softer than the bottom and the middle, so they’re finding some pretty good bargains by trading up,” he says. “They’re giving a bit away when they sell, but gaining a lot when they move.”

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