WA Excerpt from the 2012 November Market report

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Rental stock is dwindling, even though population growth in Australia’s fourth largest city remains red hot

It’s hard to draw solid conclusions about Australia’s economic wonder city. Just as Perth’s property market starts to show signs of following the city’s burgeoning economy, it surprises even the most seasoned onlookers by being the victim of its own success.

It is no secret Perth maintains one of the fastest metropolitan population growth rates, but in recent times it has also emerged that the number of available rental stock is dwindling. Investors haven’t been buying as much as in past times, and this has seen a rental market that is out of whack with the number of potential renters.

The Real Estate Institute of Western Australia’s (REIWA’s) mid-August numbers show this has had a predictable impact on rents, which are on the rise across Perth.

The REIWA research shows city rents increased $10 in the three months to August, hitting a new median of $440 per week.

REIWA president David Airey says the numbers show a clear pattern. “As the number of rental properties diminishes, rents are being pushed up,” he says. “It’s a classic case of supply and demand being driven by population growth and weak investor activity.”

Airey adds rising rents have contributed to an increase in the number of tenants breaking leases, some of whom have bought their own homes. While this may free up more places for rent, it is arguable that this will not make a significant difference. There are 2,440 properties listed for rent, which is a 34% drop in numbers compared to this time last year.

“I can’t see this rental situation changing in the short term, particularly given that the market tends to pick up in spring,” Airey says. “The bottom line is our population growth is higher than the rest of the country and everyone needs somewhere to live.”

Buying vs renting

Airey’s forecasts may have a point, but when considering new research by RP Data, the future of high rents looks a little less assured. The data provider’s Buy vs. Rent report showed the city enjoyed a gold and silver finish in the metropolitan category of areas in Australia where it is cheaper to buy than rent.

Mount Hawthorn, in Perth’s north, led the way with an estimated difference of $742 per month between mortgage payments and rental payments, based on a standard variable home loan, with principal & interest repayments.

In second place, the east-Perth suburb of Burswood had an estimated benefit of $545 per month for owners. Both suburbs were well clear of the rest of the top 10, which featured three entries each from Queensland and Tasmania, and one each from Victoria and New South Wales.

Overall, RP Data’s report identified 238 suburbs nationwide where it was cheaper to buy than rent, based on median values, mortgage repayments and weekly rental prices. The research did not take into account holding costs such as property maintenance. Western Australia, as a whole, had the third most entries of any of the states and territories with 35.

With mortgage payments cheaper than rental payments in many suburbs, the expected result is that more first homebuyers will come into the market. Pressure will ease off the rental market as more stock becomes available, but capital growth will get a boost because more buyers will be in the market to push up prices.

The only issue is whether Perth homebuyers feel ready to take on the responsibility of a mortgage.

WA mortgagees lift game

New data shows there’s reason to be positive. Western Australia has shown the most improvement over the past six months in mortgage delinquency data, according to a report by Fitch Ratings.

The Australian Mortgage Delinquency report showed mortgages in arrears rose only marginally from 1.5% in September 2011, to 1.59% in March 2012, placing Western Australia ahead of all other states and territories. The national average increased to 1.6% from 1.42% across the same period. The worst performer was Queensland, rising 16 basis points to 1.86%.

“Arrears in WA have improved above average and increased less than other states, exhibiting an overall downward trend,” says James Zanesi, director of Fitch’s Structure Finance team. “WA has benefited from the rebound in the mining sector, the local economy, and housing market, as well as low unemployment.”

The positive performance means the exit of two Western Australian suburbs, Port Kennedy and Casuarina, from a list of the 20 postcodes with the highest number of mortgages in arrears. This means the ‘bottom 20’ is now made up entirely of NSW and Queensland suburbs.

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