Perth grapples with crisis of confidence
The heady days of the mining boom are long behind Western Australia – and things don’t look set to improve any time soon
Last issue, Domain chief economist Andrew Wilson commented that the Perth market was talking itself into a downturn and a potential crisis of confidence.
Well, it looks like that prophecy has already come true. It seems that wherever you turn in the WA capital you’re facing an indicator of the market going into a potentially dangerous tailspin.
Exhibit A: Falling property prices
Perth’s annus horribilis
is continuing. The latest CoreLogic RP Data statistics reveal that the average property price in the city has fallen by 4.1% in the last 12 months. This is the biggest drop of any Australian capital in the last year, and as much as three-quarters of Perth suburbs are going backwards in value.
The value freefall isn’t limited to one type of property either: the median house price has plummeted by 4.1% over the last year, while the average unit has decreased in value by 3.3%.
It’s all down to the slump in iron ore prices and the ensuing impact on the city’s fortunes.
“We’ve seen the unemployment rate in Perth rise from the mid-fours to the mid-sixes in the last year with the end of the mining boom,” says Wilson.
“Fly-in fly-out workers are no longer supporting the local economy and housing market – when they fly out and don’t fly back in again, there’s a price to pay.”
Wilson adds that the slide in values isn’t as painful as many expected – probably due to the low interest rate environment over recent months – but it’s set to continue for the foreseeable future.
“Confidence has taken a hit: price corrections haven’t been sharp but they have shifted backwards,” he says.
“Until there’s a floor established for a rebound in the local economy, that’s unlikely to change.”
Exhibit B: Increasing vacancy rates
Compounding falling property values is a worsening rental situation. Demand from new migrants pushed up rents 18 months ago, but as employment opportunities have dwindled those workers have upped sticks and headed east.
That’s resulted in a sharp decline in weekly rents and a rise in vacancy rates – measured at 3.8% citywide by SQM Research in July.
Exhibit C: A looming apartment oversupply
To add insult to injury, there’s also a looming unit oversupply issue emerging, with buyers of off-the-plan properties likely to suffer.
Herron Todd White’s (HTW’s) latest Month in Review
says “recently released residential apartment projects struggle to achieve pre-sales as overall market confidence dwindles and the prospect of a diminution in value over the construction phase of a project weighs heavily on prospective buyers’ minds”.
“At this point in the market, a significant concern lies in the settlement risk for many of the development projects which were pre-sold throughout 2014 as values may have declined by up to 10% relative to when pre-sold,” it continues.
The dramatic slowdown may be worst for those who are already committed, but may be mitigated by mooted future projects being delayed or cancelled altogether.
“Our involvement and discussions with agents for new residential development within the inner ring of Perth reveal pre-sale interest still exists, albeit at much lower levels relative to 2013 and 2014,” says HTW.
“However, there is potential that many of these projects will not proceed in the current market due to an inability to meet pre-sale covenants, unless alternative funding sources are secured.”
A glimmer of hope?
So, are there any bright spots on the WA horizon? Very few, sadly. Wilson suggests that buyer activity can only improve from here on.
“Investors are active, albeit from a lower base, and first home buyers are also active,” he says.
“Some inner-city higher-priced areas to the east are performing the best out of what is a flat market.”
However, it seems the reality is that Perth – as well as regional markets like Port Hedland, which are being hit even harder by the slowdown – is a no-go zone for investors until there are clear signs that the bottom of the market has been reached.
SUBURB TO WATCH
- Market conditions: In correction; weekly rents falling and vacancy rates increasing
- Segments to watch: Higher-priced suburbs in the east and south
- Segments to avoid: Everything else
Yangebup: Bright future ahead
Despite houses dropping by 2.9% in Yangebup, the future looks bright for this part of Perth. In fact, OnTheHouse.com.au is predicting a healthy 7% per annum growth over the next eight years and the suburb already has a good average rental yield of 5.1% per annum.
Yangebup is located about 19km from the Perth CBD, but there is a lot more to like about its location besides that. For starters, it’s only about 10 minutes from Fremantle
and only about half that to Coogee Beach.
Yangebup is also just a short drive from Cockburn Train Station and Cockburn Gateway Shopping City, which has more than 150 stores.
It’s not short on natural features either, such as scenic parks and the beautiful Yangebup Lake. Some houses on Pioneer Drive have lovely views of the lake, and the four-bedroom variety can be picked up there for around $600,000.
Due to the above amenities, in addition to the many houses on big blocks of land, as well as the proximity of schools and shops, this suburb is a great option for families.
For families, there are four-bedroom houses in Letizia Court which are in a fantastic location and can be bought for around the suburb’s median house price. They are close to bus transport, restaurants, Mater Christi Catholic College and Divine Mercy College.
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