Most investors are aware of Perth’s prevailing reputation as a declining property market – but it’s not enough to prevent determined bargain hunters from diving right in
Perth’s declining value growth trend began at the beginning of 2015 and seems set to embed itself in 2016.
There are presently around 16,000 properties for sale in the region – well above the long-term average of 12,000 – but the city’s diminishing status in and of itself doesn’t seem to be deterring all would-be landlords.
Rather, bargain-hunting investors are increasingly turning their attention to the west, keen to sniff out below-market property deals from desperate buyers who are willing to negotiate hard.
“Property sales are slowing, but sales are still occurring in Western Australia,” confirms Greville Pabst, CEO and co-founder of WBP Property Group.
“However, purchasers are taking longer to make their decisions, as they have ample choice in the current state of the market.”
, licensee and director at Wellington Barber Real Estate, adds that the market is “very price sensitive”, and only the most motivated sellers have been able to get a sales contract across the line.
The buyer demographic is mixed, he says, with assertive investors competing against first home buyers and baby boomers.
“We’ve got the older generation looking to downsize by losing the high-maintenance blocks in favour of the smaller, strata-type properties closer to the city, and there’s also demand from a mix of the young people wanting the bigger blocks,” Wellington says.
“Certainly the under-$500,000 bracket [is the most active]; the first and second home buyers have always been a little more active than the higher-priced end of the market.”
Vacancy rate above 5%
Those investors who decide to take the plunge and buy into Perth’s depressed property market may be able to snag a bargain, but they need to enter this market with both eyes wide open.
Recent capital growth has trended backwards, and investors also need to be mindful of the city’s lagging rental market.
Hayden Groves, president of the Real Estate Institute of WA, says the long-term rental vacancy rate average of Perth has been between 3% and 3.5%. Currently it sits at 5.6% in the metropolitan area, a vacancy rate that is “much, much higher than normal”.
“Because there is so much out there, tenants are tending to break their lease with far more frequency. They’re not worried about having to pay excess for a short amount of time, because they can get a really nice property for significantly less than they were 12 months ago.”
Groves is optimistically hoping to see “a turnaround in the house price [growth trend] over the next six months”, but he remains realistic about the fact that a recovery in Perth’s property market could be much further away.
“Any recovery will be slow and moderate, and prices in real terms won’t rise until excess supply washes through,” he says.
Feeling the brunt of APRA
To add insult to injury, Perth’s slowing property market is also feeling the full impact of 2015’s lender revolution, which saw the major banks slug their investor customers with premium interest rates.
Ironically, these measures were put into place to take some of the heat out of Sydney’s property price growth, not to further dampen prospects in the west – but that is precisely what has happened.
“My feeling when I look at the impact of the measures by APRA, the bank regulator, to try to slow the property market down [is that] those measures seem to be starting to impact,” explains Shane Oliver, chief economist at AMP Capital.
“Perth is still being affected by the mining downturn. It’s seeing price declines, and I think those price declines probably have further to go.”
Indeed, real estate values in WA’s capital city – which has previously performed so well, with Perth’s median house price increasing by an impressive 22% in the two years to 2013/14 – are predicted to continue weakening for several years to come.
In its Australian Housing Outlook 2015–2018
, prepared by BIS Shrapnel, QBE researchers pinpoint lower investment in the resources sector as the primary cause of Perth’s economic woes, as it has impacted on employment and migration, causing underlying demand to decline.
“With the current strong construction pipeline exceeding underlying demand, the dwelling stock surplus is expected to continue to grow in the short term. As a result, the Perth market is forecast to weaken steadily across both houses and units,” they report.
“The impact of a rising dwelling stock surplus and the slowing state economy is likely to result in further house price declines. Relatively low interest rates should prevent greater falls, and over the three years to June 2018, Perth’s median house price is forecast to be $565,000, or 2.4 per cent below the June quarter 2015 level. In real terms, this represents a 10% decline.”
SUBURB TO WATCH
East Victoria Park: Attracting young buyers
Values in surrounding suburbs may have stagnated of late, but East Victoria Park in WA has experienced steady growth over the past five years, says Shane Vasile, licensee/director of Acton Victoria Park.
Just 4km from the Perth CBD, with good public transport links and proximity to Swan River and Perth’s largest university, East Victoria Park is a suburb boasting a sought-after location and solid infrastructure. But Shane says it’s the gentrification of this inner-city suburb that has been the real drawcard for buyers.
“The amazing new high street cafe strip and restaurants have attracted people to the area,” says Vasile.
“There’s a much younger demographic now moving in, and with a lot of new apartments and mixed housing it’s still quite affordable. They want to live here; it’s somewhere that’s desirable to be.”
Demand in the neighbourhood is consistent, with a balanced mix of investors and owner-occupiers competing to get into the market.
“We’ve had a bit of a downturn across the board here, but East Victoria Park is the exception. It’s thriving,” Shane explains.
He adds that most of the blocks are subdividable, and if investors keep the older-style, 1920s workers’ cottages on the front, they then also have the option to build a new home at the rear, “which adds value”.
Do you have more than $200k in your super fund? You could use your super to buy property - Find out how