Investors and first home buyers compete in Perth
Low interest rates and rising rents are encouraging tenants to enter the housing market in Perth, which is putting pressure on supply and forcing property prices up.
A noticeable shift has occurred in Perth’s property market over the last 12 months, confirms Damian Collins from Momentum Wealth, and it’s likely to continue, at least in the near term.
“During the last eight or nine months, rental vacancies dropped down low to around 1.9%,” Collins explains. “Then last year Perth had really strong rental growth and, with interest rates at 5.5%, tenants are thinking, ‘I can get a loan and buy a home, and it’ll cost me the same as renting’. So a lot of people are moving out of the rental market and
into home ownership.”
This is translating to increased buying activity in the $400,000 to $500,000 price range, and even up to $600,000, Collins says – although, with the stamp duty exemption running out from half a million onwards, most home buyers are at the more affordable end of the market.
What does this mean for investors? Firstly, we are seeing vacancy rates start to increase.
“They’re still under 3%,” Collins clarifies, “but the rental market is not as buoyant as it was.”
Furthermore, levels of available residential stock – particularly under $600,000 – are shrinking, leading the Perth property market to a position where supply is outstripping demand.
“A balanced market is considered to be 12,000 to 13,000 properties, but we’ve been at 8,000 listings,” Collins says.
“The sale market has been strong, and there is a shortage of stock, so we’re expecting the market will perform well. It’s moved already, but we’re predicting 9% growth in 2012/13, and 6–7% in 2014.” Backing up Collins’ positive predictions for Perth is a new RP Data report detailing almost 800 locations nationwide where they predict rental returns will double in value over the next decade. Of these suburbs – each selected based on its past performance – 181 are in the west.
“From an investor’s perspective, these are the ones that have done very well in the last five years,” confirms the report’s co-author Cameron Kusher, adding that each location on the list has experienced “consistent rental growth of at least 7.2%”.
Regional areas achieve ‘patchier’ results
While Perth appears to be in a strong position, the same can’t be said for the city’s regional counterparts.
Overall, the WA economy is very strong, Collins says. “The construction phase of a lot of projects is ramping up, which is encouraging people to move to WA. However, a lot of these workers don’t live in the same towns where they work – about 70% of the mining workforce is FIFO [fly-in, fly-out], and by and large they’re based out of Perth.”
As a result, property price growth in regional areas is “a lot patchier”. Both rental growth and capital appreciation in WA mining townsare showing signs of flattening out,which is largely due to increasing housing supply.
“Kalgoorlie is not setting the world on fire – you can get a property out there in the $300,000 range and get good yields of 6% plus, so that could be an option for some investors. But Port Hedland is getting the supply, so it’s getting topped out,” Collins warns.
“The situation in Karratha is worse, as the latest stats show that rents in Karratha have dropped
around 30%. It was crazy when weekly rents were at $2,000 in a town of 20,000 people – it just didn’t make logical sense. I think you’d be taking a big gamble to go into these mining towns right now as we’re at the top of the market; the time to buy here was six years ago.”
Spotlight on: Perth’s best 12-month performers
When reviewing the largest price increases in a city, something to keep in mind is that, from an investment point of view, large-scale growth can be a double-edged sword.
Unless an investor currently owns property in one of these areas, the rapid price increases could be a bad thing, depending on certain conditions. In some cases it could mean that the market is reaching a level at which properties are considered unaffordable, and the time to purchase has already passed.
Think about it. When that affordability point is breached, it is unlikely that more price increases will follow, because buyers can simply purchase somewhere cheaper. Prices in a suburb won’t keep going up and up forever; they will grow a lot in one place, go flat, and then growth will move somewhere else.
Of course, huge price increases off an already low base can often be the start of a prolonged period of appreciation because there is plenty of room for prices to grow before they become unaffordable.
Investors also have to consider that the general price trend of the entire Perth market at the moment is up. In that environment, these suburbs have Suburb Type been the most popular.
John Mason of John Mason Real Estate explains how his suburb off ers a little something for everyone
Selling points: Carramar is located right in the middle of the thriving cities of Joondalup and Wanneroo, each a 10-minute drive away. It is also a short drive to Burns Beach, and a shopping centre has recently opened at Carramar Estate. Local schools are well sought after and have long waiting lists. At the edge of the suburb, Flynn Drive Industrial Estate is undergoing development, and there will soon be plenty of jobs in the area.
Most sought-after properties: Properties below $570,000 are in big demand, attracting multiple offers. There is a restrictive covenant on the estate, which means that all houses have to be up to a certain standard.
Top amenities: These include a prestigious golf course, sought-after school, shopping centre, plenty of parks and open spaces, and proximity to the beach, freeway and train station.
Recent changes: The golf course has come on in leaps and bounds and the course itself is in top-class condition. Infrastructure has improved: we now have our own shopping centre, fast-food outlets, medical centre and recreation centre. Plans are also afoot to construct another new restaurant.
Main arteries: The Mitchell Freeway offers a direct run into Perth, although it gets clogged up in peak hours going both north and south. However, Joondalup and Clarkson train stations are a 10-minute drive away and off er a direct route south into the Perth CBD.
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