Perth figures throw a curveball
Things aren’t exactly as they seem as seemingly good growth figures fail to translate into gains at the lower end of the market
There are three types of lies, according to an old maxim. There are lies, damned lies and then there are statistics.
Perth investors should keep this in mind when examining the most recent statistics concerning house price growth in Perth which, while far from “lying”, could easily be misinterpreted without some context.
A simple glance at the latest data on house price growth in Perth shows that city median property values are continuing to grow, but Real Estate Institute of Western Australia (REIWA) president David Airey says the reality is not as simple.
By REIWA’s calculations, which use a simple index that ranks all sales from high to low and plucks out the middle or ‘median’ figure, the December quarter saw growth in house prices of 6%.
Normally this would suggest that sellers have been trying their luck with higher asking prices and that buyers have been prepared to accommodate them, but Airey says this has been far from the case with recent property sales.
“[Growth in values] has largely been driven by two key factors,” says Airey. “The number of first home buyers has actually dropped 12% since the June quarter with a notable fall in sales under $400,000… at the same time there was an increase in sales over $600,000. Together, this compositional change in sales acted to pull the median price upwards.”
Rival RP Data figures, which are calculated on a hedonic index that includes property attributes rather than just a simple median index, also show that growth in Perth’s median house price has been driven by increased activity at the top end of the market.
According to RP data, Perth’s top performing market between January 2013 and January 2014, recording a 41% increase in the median price, was hardly in the range of what could be considered an affordable market. That suburb was mansion strewn Peppermint Grove
, which boasts WA’s most expensive median house price: $3.5m.
Other strong performers recording growth in excess of 20% included houses in Mount Pleasant, North Fremantle
, Watermans Bay and Menora – all of which have a median house price over $1m.
First home buyers
For commentators such as Australian Property Monitors senior economist Andrew Wilson, Perth’s drop in lower end activity shows a city that is starting to mirror patterns in other capitals.
Up until recently, Perth had been the only capital city market where first home buyers were primarily responsible for driving an increase in prices – not investors and upgraders. Now it is likely that first home buyer activity is going to fall as affordability constraints impact the market, Wilson says.
“Last year there was a surge in job seekers into Perth and WA and that pushed up rents to extraordinary levels. In this environment it was no surprise that significant levels of first homebuyers moved into the Perth housing market and this encouraged prices growth as a result.
“Tapering off of first home buyer activity in Perth, I think, reflects capacity constraints. That first home buyer surge has moved its way through the market and buying power is becoming constrained. We’re also starting to see rents fall in Perth.”
REIWA’s David Airey agrees. “I think the fall in turnover with sales under $400,000 has largely been a reaction to both low levels of housing stock and also affordability pressure on some first home buyers.”
New homes gaining popularity
The latest Housing Industry Association New Home Sales report indicates that nationwide new home sales rose 14.4% in 2013.
In Western Australia, private detached house sales increased by 7.3% over December 2013, while over the final quarter of 2013 the increase was 2.3%.
HIA economist Diwa Hopkins says the encouraging results come after a “low ebb” in sales during 2012. "The key now will be for these improved sales levels to expand further in the year ahead,” said Hopkins.
“During the final quarter of 2013, aggregate new home sales climbed by 6.3% to reach a level not seen since mid-2011,” she said. “This was at a time when sales activity was being boosted by the government stimulus.”
While total new home sales was largely unchanged in the month of December, the broad trend shows a “healthy profile of recovery” throughout 2013, said Hopkins.
“The aggregate monthly decline was due to an unsurprising pull-back in multi-unit sales, following the previous month’s very strong result. Looking at detached house sales, the growth in this segment has broadened in its reach.”
Suburb to watch: Banksia Grove
Lisa Brake of Best Benchmark Property Management explains why the suburb is one of Perth’s up and coming areas
Selling points: Banksia Grove is an up and coming suburb. House prices are rising due to planned facilities, including an education precinct that will supplement two existing primary schools. It is very family orientated with lots of parks, 40 hectares of bushland and a proposed skate park. Joondalup is just 5km away, while the coast and CBD are a respective 9 and 27km away.
Most sought-after properties: Houses conducive to family living are most highly sought after: 4 bedrooms, 2 bathrooms with functional open style living, double garage, and air conditioning.
Top amenities: Everything a tenant could need is within a few kilometres. This includes golf courses, a university campus, a sports club, shopping centres, a cinema and a train station.
Recent changes: In the last few months the local bus route has been extended. The later stages of Banksia Grove haven’t yet been built and are not due for completion until 2020. Land is still for sale. A new shopping centre is set to open in 2015, which has a confirmed Coles and Liquorland.
Best streets: The suburb is divided into two sections the ‘old’ Banksia Grove and the ‘new’ Banksia Grove. The older side has some lovely streets like Mornington
Drive and Sundowner Meander. The new side also has opportunity and a lot of investors are trying to get in before facilities are built and land prices goes up.
Public transport: Bus routes through Banksia Grove go to Joondalup Train Station. Park and ride are also available and the recently widened Mitchell
Freeway puts the CBD within 30 minutes’ drive.