WA excerpt from the August 2010 Market Report

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Hot and Cold

Despite the recent volatility in house prices, experts remain optimistic about prospects for the WA housing market.

If you are confused about the current state of the Perth market and where it’s going, that is because house values have been bouncing up and down over the past few months. For example, in the February quarter, values dropped by more than 2%. Then they went up by 1.18% in March. In April this was reversed again.

House prices fell by 0.67% in the month and 0.68% in the quarter, with a tiny 1.67% increase in the 12 months to April. T

Things looked even worse for country WA, with house prices falling by 1.85% over the month, 5.12% in the quarter and 6.75% over the year.

WBP Property Group WA director Brendan Aylmore says that this is partly due to some developers disposing of development sites in recent times. “Purchased at the height of the market, many sites remain undeveloped as projects were put on hold due to tightening lending conditions, as well as difficulties experienced by developers trying to pre-sell a proportion of off-the-plan dwellings in order to secure finance,” he explains.

“This resulted from a lack of confidence from purchasers, and it may have repercussions for supply in the short term.”

Units fared a little better, with values rising by 1.98% in the month to reach a median price of $407,500 in April. Growth was also positive for the quarter and the year, at 3.26% and 10.47%, respectively.

But while the Residex house price figures for April look gloomy, the experts are suggesting there are good times ahead. Property expert Terry Ryder notes that huge iron ore, gas and gold projects, plus infrastructure plans and new export ports in the state, should all lead to positive growth in the real estate sector.

Aylmore agrees, adding that major projects in the pipeline should produce positive effects on the market. “Although current market activity suggests only modest growth potential for Perth within the next 12 months, there is potential for a slight seasonal increase in values once operations at Gorgon and other Pilbara projects commence, as workers move to WA to capitalise on the trade shortage these projects will create.”

While capital growth hasn’t been impressive, the rental market isn’t looking good for investors either. The Real Estate Institute of WA (REIWA) says the vacancy rate in metropolitan Perth has remained well above average.

The rate did drop slightly from 4.7% in the December quarter to 4.1% in March, which REIWA president Alan Bourke claims is due to diminished stock, not increased demand.

“What we’re witnessing is that many investors who found it hard to sell in the last couple of years put their properties into the rental system to ride out the downturn,” he explains. “Now that things have improved, some owners are listing these dwellings for sale, which accounts for the increased stock for sale and the lower rental vacancy rate.”

First homebuyer market collapses

It appears that rising interest rates and the removal of the federal government grant boost have proven too much for first homebuyers, who have largely dropped out of the WA property market.

New First Home Owner Grant figures released from the Office of State Revenue show that there were just 988 first homebuyers in April, down from 2,322 the previous year. A small number of first homebuyers (728) purchased an existing home and 260 built a new one, in comparison to 1,555 who bought an existing home and 767 who built a new one this time last year.

Bourke says the drop-off is evident across both metropolitan and regional WA. “The effect of six interest rate rises and the collapse in first homebuyer activity since January is now evident in all market indicators for Perth and regional WA.”

Aylmore says that both first homebuyer and premium sectors have shown decline, while the middle market is holding strong. Property valuation group Herron Todd White suggests the premium end may see growth in the near future. “The premium sector of the residential market is still in recovery mode; however, an increase in sales activity and a general lift in optimism indicate that values should continue to trend in a positive direction.”

Look close to the CBD

Aylmore points to the inner-city suburbs as offering above-average yields and solid capital growth for investors.

He adds that demand for properties within the sub-$600,000 investor category remains strong, particularly in the typical investor and coastal areas and within close proximity to the CBD. “In particular, coastal locality Scarborough has witnessed the return of investors looking to secure an investment property in the area, known for its sound capital growth.

“Similarly, suburb Inglewood is fast becoming a hot spot with an affordable price tag. Fresh retail development along Beaufort Street, high rental returns and proximity to Mount Lawley entertainment precinct and the CBD are all factors contributing to the suburb’s strong performance.”

Aylmore continues: “Emerging suburb Alkimos, a new area located 50km north of Perth, is a vibrant coastal community currently under development and another area to watch. New vacant lots are currently selling off-the-plan with ease and, following the completion of further infrastructure and retail development to accommodate population growth and improve accessibility, Alkimos and surrounding suburbs will be in high demand.”

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