Time running out in Perth
Investors on the hunt for fast equity only have roughly two years until prices stop increasing and start going down again, says one forecaster
It would be fair to say that John Edwards knows a thing or two about property prices. The Residex chief executive has been monitoring the Australian property market for more than 20 years and was a pioneer in developing the detailed housing price indexes we have today.
Within its market space his company may not be alone, but the way it arrives at its median price calculations – prioritising historical price trends – is somewhat unique. It is for this reason that Perth property investors should take heed of what Edwards is saying.
Going against widely held forecasts that Perth property values will enjoy a few years of uninterrupted price increases, Edwards believes that the Western Australian capital is actually due a correction – and sooner than most might think.
“Over the coming year we will continue to see growth in the [Perth] market. It’s definitely due a bit of good growth, but the timeframe for this growth is going to be short,” he says.
Edward’s company forecasts that over 2013 Perth property prices will grow at around 6% and, in the year following that, he anticipates prices to do even better, growing at over 10%. Going into 2015, Edwards predicts prices will start to fall again.
“When you try and analyse the numbers and how they could be right – we’ve got all these resource projects that will be coming on stream by 2015. The highest labour obligation for any resource project is during the development phase, so with all these projects out of that phase we will see a reduction in Western Australian labour activity. As this happens, demand for housing will slow down.”
Edwards also warns that the response of builders to the current market, if past trends are anything to go by, might have an influence on the market. He believes that, expecting something of a return to boom times, developers may fall into the trap of getting ahead of themselves.
“What usually happens when a market is doing well is that developers oversupply. They overreact to the market and it takes a long time for it to come back to where supply really needs to be.”
To illustrate why a lot of developers might be getting excited about the Western Australian capital, Edwards puts Perth’s short-term value growth into context. “Up until 2015, you couldn’t call it boom times, but the value growth that we will see in Perth will probably be better than just about anywhere else.”
Perth rents to become most expensive
Australian Property Monitors’ (APM’s) December Quarter Capital City Rental Report shows that, although Sydney remains the most expensive capital city to rent in, Perth is set to take the lead sometime in 2013.
APM figures show that Perth rents rose substantially in the December quarter while growth in Sydney rents was more subdued. APM senior economist Andrew Wilson says the surge in rents was a result of a wave of new arrivals to the city. This created high competition for rental properties, exacerbated by low levels of new housing construction over the past few years.
Mining town women drought
The results of a controversial study could make it easier to forecast the buying patterns of a number of WA mining towns. The cue word is sex.
In most of WA’s mining towns there is a disproportionate number of men to women. In Newman, a mining community within the Pilbara region, for example, Australian Bureau of Statistics figures show the ratio of men to women is more than two to one.
Such imbalances can have a significant effect on how a local population chooses to spend its money, according to a study by the University of Minnesota’s Carlson School of Management.
The research found that a perception that women are scarce leads men to save less, increase their borrowing and become more impulsive buyers.
The school’s assistant professor of marketing, Vladas Griskevicius, says this is because when females are scarce males become more competitive. “How do humans compete for access to mates? What you find across cultures is that men often do it through money, status and products.”
To test whether sex ratio affects economic decisions, the researchers had participants read news articles that described their local population as having more men or more women. They were then asked to indicate how much money they would save each month from a pay cheque, as well as how much they would borrow with credit cards for immediate expenditure.
When led to believe women were scarce, the savings rates for men decreased by a significant 42%. Men were also willing to borrow 84% more money each month. Griskevicius adds that participants were unaware that sex ratios were having any effect on their behaviour.
Spotlight on: WA top performers over the last 10 years
Despite the amount of press about growth in mining towns, a look at average annual growth figures – a measure of the amount of growth achieved in a market for every year of the last 10 years – shows that WA’s fastest growing property markets are a diverse mix of areas.
The state’s top performer for the last 10 years is Yalyalup, a suburb within WA’s cooler southwest, a good 200km south of Perth. The suburb’s impressive rate of 33.7% annual growth in house prices is followed closely by Newman, a mining area within the Pilbara region, with 33.4% growth.
Perth’s top performers, on the other hand, are spread quite evenly across the periphery of the city, with Aveley, on the city’s north-western side, leading the way. The fact that many Perth suburbs have outgrown mining towns shows just how much the city has boomed over the last
10 years: the city’s top two fastest growing areas are the sixth and seventh fastest growing markets in the state.
Centrepoint Realty’s Jade Smith explains why East Perth is one of WA’s up and coming suburbs for investment
Selling points: East Perth is an amazing suburb. Set right on the Swan River, it is surrounded by many parks and has stunning views of the city and the water. Cafes, restaurants and boutique shopping outlets are around every corner, and the suburb is close to South Perth, Ascot and Mount Lawley, with the Perth CBD just a stone’s throw away.
Most sought after properties: The highest demand in the rental market at the moment is for fully furnished and equipped properties to meet the demand of mining executives and fly-in, fly-out workers from around Australia and the world. Three-bedrooms are in more demand, with two-car bays preferable (however, these can be hard to come by).
Local industry and business: There is a huge diversity of business in East Perth, ranging from florists to fashion retailers, beauty salons, coffee shops, art galleries, real estate agents and accountants. Most of the major mining companies, accounting and law firms, banks and retail giants are based in the CBD, which is just a few kilometres away.
Recent changes: The Perth foreshore is currently being transformed, from East Perth into the city. Elizabeth Quay is being developed and will be a major attraction in the area. The population continues to grow here, as over the years East Perth has become a sought after and prestigious place to live.
Best streets: Terrace Road is the closest you can get to the river and foreshore, and is a great place to buy. Royal Street is good as well – here you are at the heart of the cafes, restaurants and shopping outlets.
Public transport: Free CAT bus services run daily every 20 minutes, and there are two train stations nearby that can get you just about anywhere up and down the coast.
Can you afford to buy in this suburb? Find out how much you can borrow