Imagine this. If the end of next year were to see a party in which all Perth’s property investors attended, it’s pretty clear who would make the A-list and who would be left standing at the door staring down a toothless bouncer from New Zealand.
Those drinking champagne and sipping the high-life will largely be investors who already own property in Perth or are going to purchase in the next two years or so. The ones left crying, wondering why they didn’t get in, could be the investors that choose to purchase any time after that.
The point of this analogy is that things appear to be looking up for the Western Australian capital. After having experienced consistent declines since the global financial crisis, many pundits are now saying Perth property prices could be going up by the end of the year – and in a big way.
In fact, some economists believe that Perth property prices could soar so much that affordability issues will eventually create a ceiling that will make it difficult for many investors to enter the market. They’ll be left outside, shivering in the cold, unable to get into the party.
BIS Shrapnel senior manager Angie Zigomanis says the evidence of an impending surge in prices is already there. “Population growth is already accelerating as Perth benefits from rising overseas and interstate migration and, combined with recent weak new dwelling construction, this has resulted in vacancy rates tightening from 3.5% at June 2011, to 1.9% in March 2012,” he says.
BIS Shrapnel is forecasting Perth house prices to rise 22% over the three years to June 2015, representing a rise of just over 7% per annum. However, the Real Estate Institute of Western Australia (REIWA) cautions that large-scale increases could profoundly affect affordability, especially in the rental market, and that this could limit the extent of growth much further down the line.
“A concern is the affordability pressure on people in the rental system,” says REIWA deputy president Ian Cornell.
“The proportion of income required to meet the median rent in Perth grew by 0.7% in the March quarter and now stands at almost 21%.”
Cornell adds that REIWA’s Housing Affordability Report for the March quarter speaks volumes about Perth’s nagging affordability issues, indicating housing affordability in WA fell by 1.2%.
Why Perth could turn
Cornell believes a pivotal period is ahead for the Perth property market. REIWA data shows that the number of Perth properties being listed in June was at its lowest level since April 2010, but the number of reported sales was actually increasing. This is one indication that rents and prices could be on the up as the rules of supply and demand take effect.
What Cornell believes could turn the market significantly is a “dramatic collapse” in building approvals. He cites April data, which shows building approvals slumped to an extraordinary 46.7%. “If this persists for a few more months we will see a fall in new dwelling starts for both the June and September quarters,” he says.
“This will ultimately lead to a supply imbalance that will, in turn, put pressure on established housing. The knock-on effect will ripple through the existing residential housing market and put price pressure on both buyers and renters for the latter half of 2012.”
Zigomanis agrees that price increases should be apparent by the end of the year. “With unemployment in the state already leading the nation at 3.8% in March 2012 and economic and income growth to continue to strengthen, the first stages of a turnaround should appear in 2012/13 before stronger price growth emerges in 2013/14 and 2014/15 as economic growth approaches a peak.”
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