Do Perth price increases have an expiry date?
Impressive results are still a feature of the Perth property market, but is the city nearer the end of a strong growth period or at the start?
No party lasts forever. Just ask the Australian national cricket team. Back in 2007, the likes of Glenn McGrath, Brett Lee and Adam Gilchrist had built a team that seemed indestructible. Of course, it didn’t last. The team has now drifted to a dire position and the betting money is on the opposition. It’s a lesson Perth investors would do well to remember.
As Perth property prices continue an impressive run of growth, investors have to wonder when the inevitable cycle of boom to bust is going to commence. Already, the city is into its sixth quarter of successive growth in property values, and a predicted slowdown in economic activity as the resources boom winds down hardly reflects the kind of conditions that will support further growth.
Regardless of whose numbers you look at, there’s a lot to suggest that current growth has been prolonged. RP Data August 2013 figures show city-wide house values to be 6.3% up on August last year, while competing numbers by Australian Property Monitors (APM) show values are up 7.5% over the same period. “This is the best performance by any capital city housing market,” says APM
senior economist Andrew Wilson. Despite the fact that significant growth has already been recorded in the Perth property market, and that history suggests the pattern cannot continue unabated, Hotspotting director Terry Ryder says investors shouldn’t discount the possibility of further growth just yet. According to Ryder, one element that’s continuing to tick prices up is a chronic, and probably understated, shortage of houses.
“Perth appears to be facing a land shortage as developers try to release enough blocks to meet demand on the urban fringe,” he says, adding that demand for houses remains strong, despite increasingly expensive property prices.
His view is that such conditions suggest there is more growth in the pipeline for Perth and that growth is likely to continue for some time yet.
“WA is still the nation’s powerhouse... [It] is the strongest [state] economy,” Ryder says.
Tax changes imminent
In other developments, the WA state government has decided to maintain the stamp duty exemption for first home buyers, but has made changes to the First Home Owner Grant. The grant has been adjusted from $7,000 to $3,000 for those purchasing an existing dwelling, while new builds will receive a boost of $3,000 to $10,000.
Real Estate Institute of Western Australia (REIWA) president David Airey says the change will not produce the outcome the government is expecting, which is to stimulate construction.
That idea was not supported by evidence from other states which have gone down a similar path, partly because 70% of new home owners buy existing dwellings, he says. “More importantly, the building industry doesn’t need any stimulus and is currently flat out meeting existing demand.”
Airey also says REIWA is not happy with the 12.5% increase in land tax for other property owners, who are frustrated by increasing bills.
“This is a kick in the shins for property investors who supply two thirds of rental stock in WA. It will suck an extra $73m out of their pockets as a punishment for being an investor.”
Rail suburbs return strong yields
Suburban properties (especially units) serviced by railways provide stronger rental yields than those without access to rail transport hubs, according to PRDnationwide’s Australian Railway Suburbs Report.
PRDnationwide research director Aaron Maskrey says Perth rail and non-rail localities have historically experienced negligible price differences. “However, investors are buying into railway suburbs, with a 19.3% increase in unit sales when compared to 12 months ago.
“Outside of inner-city Perth, in the north and east of the city, unit buyers are pocketing rental returns that are around 1% higher than similar units in non-rail areas,” Maskrey adds.
Suburb to watch
Known as the Garden City, Bayswater is home to a number of picturesque attractions as well as 10km of Swan River foreshore. The suburb also has the attraction of being located just 8km northeast of the Perth CBD.
Bayswater is an interesting suburb with undulating hills and great parklands, including the premiere Riverside Gardens, Carters Real Estate Bayswater principal Gary Warne says.
Properties are varied, he says. “There are only a couple of blocks of apartments, but there are many villas and townhouses in smaller groups. There is a range from the older character homes near the railway line to modern homes on good-size lots.”
Good public transport options exist already, but the suburb is set to become the first stop on the airport to- Perth train line, Warne says. “This makes it ideal for fly-out workers or business travellers.”
Bayswater has the full range of amenities, with great preschool and after-school care, kindergartens, three primary schools, and two high schools. “It’s a small and friendly village hub with a variety of shopping and proximity to cafe strips,” Warne continues.
Some redevelopment is taking place in the suburb. The local government is reviewing its urban housing strategy and the state government is conducting work aiming to increase density codes around train station hubs.
Economic commentators have singled out Bayswater as one of Perth’s suburbs with the best growth potential.
“This is because of its proximity to the city, train line public transport and central access to most suburbs. It currently has an average turnover for property of less than a month, which is about half the Perth average.”
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