Values and rents set to fall further
If you’re thinking of getting back into the Perth market, you may want to hold off for now, warns an expert
The weak performance of Perth’s property market could linger a little longer if the latest data is an indication.
According to the recent stats from CoreLogic RP Data, Perth was the worst performing capital city with dwelling values falling by 1.6% during the April quarter.
During the past 12 months, dwelling values stagnated at 0.3% growth. Only Darwin
performed worse with values dropping by 1.6% as the major infrastructure projects associated with the resources sector wound down.
Tim Lawless, research director with CoreLogic RP Data says flattening economic activity and falling confidence in Perth will continue to put downward pressure on house price growth as it transitions rapidly from its previous resource and population boom environments.
Linda Phillips, head of research at Propell sees a similar trend and adds that “until the world economy stabilises as a whole, inclusive of the iron ore price and resources sectors, we are likely to see some pessimism from purchasers which should lead to easing property prices.”
Rents under pressure
Not only are Perth investors getting hammered by the falling property values, their rental income is also taking a beating according to the latest numbers from the Real Estate Institute of Western Australia (REIWA).
Median rent across Perth has fallen by another $10 to $430 per week through the March quarter, taking the total losses to $30 per week from a year ago.
REIWA president David Airey is expecting vacancy rates to rise even higher during the winter months as a result of the weaker rental market.
“The Perth vacancy rate lifted to 4.4% for the first three months of the year, due to falling population growth, the volume of new dwellings on the market and the number of former tenants who became first homebuyers while interest rates were low,” says Airey.
The number of rental properties currently on the market soared to around 7,080, up from 5,140 in the same period last year, representing a hefty 37% jump in supply. At the same time, rents have remained steady.
During its peak, landlords were getting $475 week, but this has since tumbled by 9.5% over the past two years as there is now more supply of property than the market can absorb.
“Property owners would need to review their asking rents to attract and hold good tenants amid the competition,” says Airey. “It’s also important for properties to be well presented and properly maintained to attract interest and secure the best lease in the shortest time.”
The reiwa.com data shows the average time taken to lease a property had stretched to 36 days, up by almost a week on March last year.
Too early to get in?
While it might be tempting to go in and scoop up bargains, Linda Phillips says it’s too early to do so. “This market is still easing in price terms,” she says.
“While good buying opportunities always exist, there is no need to rush into the market, and 2016 may see it levelling off with better opportunities.”
Among her biggest concerns include:
- Uncertainty behind iron ore prices and resource markets
- Previous unsustainable growth has left supply in excess of demand, particularly in outer suburb areas such as Byford
- Potential flooding of the market due to high levels of new apartment construction in inner city areas
- The rental market is way oversupplied with rents falling.
Despite these negatives, there are some positives about the Perth market as well according to Phillips. These include:
SUBURB TO WATCH
Cottesloe: Beach lifestyle near the city
- Potential for first homebuyers: With a market that is easing, the likelihood that an affordable marketplace may be on the horizon is a good thing.
- Density and zoning attitudes: Reduction of the urban sprawl is being targeted vigorously by many councils. Higher density zonings are becoming more popular with councils, leading to affordable housing closer to the CBD.
Cottesloe may not feature prominently on many investors’ shopping lists, no thanks to its sky-high prices, but that’s not a reason to ignore it completely either.
Home to multi-million dollar mansions and some of the country’s highest earning residents, Cottesloe is Perth’s answer to Sydney’s Bondi Beach. The Cottesloe Beach that stretches for miles is one of Perth’s most breath-taking beaches, especially at sunset. It’s clean and never terribly crowded either.
There are ample amenities in the suburb and it’s easily accessible both via public transport and private car. It’s close to the Perth CBD and takes only about 15 minutes to reach it.
During the 2007-08 boom, median unit prices soared close to the million-dollar mark. Since then, prices have pulled back to its current median of $788,000. During the past 12 months, values dropped by 5.6%.
There are pockets of the suburb where you can still snag a reasonably priced property such as those along McNamara Way, where properties were selling as low as $476,123, and you can still pick up homes for $506,118 in Little Marine Parade according to the stats by onthehouse.com.au.
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