The recent weakness in WA’s housing market appears to be coming to an end as savvy investors start moving back in.
The mood among property investors who are eyeing up Perth’s prospects is that the market has bottomed out, turned, and that now’s the time to buy. At least that’s how Otan Property Funds managing director Mark Butler sees it.
“Perth’s already started to turn,” he says. “The psychology is that ‘it’s bounced off the bottom, it’s started to move, volumes are picking up and I’d better do something sooner rather than later’. That sentiment will also be pushed on by external investors coming from both overseas and the eastern seaboard.”
East coast interest in the Perth property market is mainly coming from Melbourne, says Butler, but he expects Sydneysiders to start looking west in increasing numbers as Perth’s market picks up.
“We’re getting interest from east coast buyers, particularly the Melbourne buyers. The way the Melbourne market’s slowed down, people are asking where the next place with some traction is,” he says. “The demand is definitely coming more from Melbourne than Sydney, but I think that Sydney will catch up.”
The rental market’s moving
Butler has also noticed that east-coasters are helping to fuel a spike in the uptake of high-end rental properties. This, he puts down to an increasing influx of well-heeled interstate workers who have decided to relocate to Perth in search of employment on the back of WA’s resources boom.
“We’re seeing feedback that the rental side of things for those larger $1.5m-plus houses is on the up, because a lot of people from the east coast are taking them sight-unseen. It was always predicted that that end of the market would tighten up, and that’s very much happening now. The vacancy rate seems to be moving quite rapidly,” he says.
And it’s not just the top end of the rental market that’s on the move. March statistics from SQM Research show that – in terms of capital cities with tight rental vacancy rates – Perth’s figure of 0.9% was bettered only by Canberra’s 0.6%. Quite a dramatic turnaround for a city whose March 2010 quarter rental vacancy rate was as high as 4.6% according to the Real Estate Institute of Western Australia (REIWA).
This, in turn, has contributed to an increase in asking rents for both houses and units in the state capital. Australian Property Monitors (APM) results for the March quarter, for example, show a rise in median weekly asking rents of 1.3% for houses and 2.9% for units, when compared to the previous quarter’s figures.
When it comes to sales however, REIWA figures at the end of the March quarter indicate that it’s still very much a buyer’s market. The number of properties on the market was close to 18,000 – well above Perth’s long-term average of 12,000 – with each property taking an average of 81 days to sell.
REIWA president Alan Bourke suggests that struggling vendors might do well to make the most of Perth’s increased rental demand and turn their property over to the rental market, but that there’s no guarantee that rents will continue to be pushed upwards throughout the year.
“The housing system is all about supply and demand. We may see rents increase further but it will depend on demand and this is driven by the broader economy and the availability of jobs,” Bourke says.
Strong economic fundamentals
Commenting on Perth’s slow sales market, APM senior economist Andrew Wilson notes that buyer confidence is low despite the city showing strong economic fundamentals.
“There are growing levels of population growth and an influx of fly-in, fly-out workers, but this is not translating through to sales,” he says. “We’re seeing growth in unit rental markets, but that’s mainly down to first homebuyers staying in rental properties and intensifying demand in the unit rental market,” says Wilson.
He notes that buyers may be taking a conservative attitude in the wake of recent mining and carbon tax debates.
“However, I would expect that given the strength of economic growth, and that supply isn’t where it should be, that we should see capital growth. But that’s now likely to materialise in the third or fourth quarter,” says Wilson, adding that capital growth in the Perth market tends to snowball, so 2012 could turn out to be a wild ride.
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