After licking its wounds for much of late 2011, the Perth residential property market is showing signs that growth may soon match that of the city’s burgeoning commercial property sector
It’s there, hiding in plain sight, visible for the entire world to see.
The Perth CBD, once one of the smallest capital city business districts in Australia, is undergoing a tremendous growth spurt. Anyone sitting in the city’s famous Kings Park, gazing out across the Swan River and seeing the sun sparkle off the water and city skyscrapers can notice it – the place sure does have a lot of construction cranes.
It is no secret that the city is now Australia’s leading market for commercial property. You can look at just about any indicator and Perth comes out tops. No other city can touch it. Commercially, Perth property is solid gold.
Despite this, the performance of Perth residential property leaves a lot to be desired. Even with all the billions of dollars coming into the state for mining investment, even with a recent surge in population growth, residential property price growth over the last 12 months has not kept up.
Residex figures show that growth for all types of residential property has been flat. After huge falls over early 2011, price growth has failed to clear a percentage point over the last 12 months. While median house values rose 3.52% during the three months ending April, this is hardly keeping up with the breathtaking economic growth that Western Australia and Perth have been experiencing.
“In most areas of the economy, compared to the rest of the country, [WA] is doing well… looking at the data, the only area that is yet to benefit is the property market,” says Paul Braddick, head of property research at ANZ.
Braddick says that, in many ways, the property market in Perth and in WA at large, has been a victim of its own success. In the three years leading up the GFC, prices were growing by up to 20% at a time when the rest of the country was seeing growth of around 6%. When catastrophe hit financial markets across the world, WA was hit badly. It is still yet to return to growth levels seen over March 2008.
However, recent indicators suggest that the tide might be turning at last.
The good news
According to March quarter figures from the Real Estate Institute of Western Australia, Perth’s median house price has jumped by about $2,000 over the space of three months. What is significant about this, says the REIWA, is that it represents two consecutive quarters of growth, following seven quarters of decline.
“The median house price isn’t the only measure of the market, but when we look at the other indicators from the quarter we find it’s generally a pretty good picture,” says REIWA President David Airey.
“The gap between the asking price and the selling price in Perth has also closed further, dropping to 6.4% from 7% in December. This trend suggests that more sellers are meeting the market and that pricing is being done with greater confidence as the median price levels out.”
The April data from Residex also paints a buoyant picture for the unit market in the state with median values surging by 7.36% during the past three months.
Airey adds that the rental market in metropolitan Perth saw a strong performance too. “The median rent in Perth lifted by $20pw, or 5% from the end of last year. This has been prompted by a tightening of the vacancy rate to 1.9%, well under the accepted equilibrium of 3%. REIWA property managers are [also] reporting strong interest in rental accommodation at home opens, with many people looking through properties to secure a place to live.”
Seeing the glass half full
One of the benefits of such strong performance in the rental market is that some of these renters may start to take the plunge and become home owners, says Airey.
He expects that this will be a trend over the course of the year, resulting in an ease of pressure on the rental market.
“I think over the last 18 months many potential buyers have lacked the confidence to purchase, as they watched the median price coming down in weak national and international economies, but now that things are picking up and the housing market has bottomed out, they are returning,” he says.
All in all, however, Airey is confident that the worst is now behind the WA property market, and that there are good reasons for optimism going forward.
“There is often a slump in the market during the winter months, but I’m confident that for the remainder of this year we will see sales turnover increasing and the median price gradually lifting as our state maintains its good economic growth and positive population trend. It’s not a boom but it does look like a welcome return [to] more normal market conditions.”