Smart investors are cautiously exploring the best opportunities as the Perth market moves to the next pace of the cycle
Perth’s subdued performance of late may not be making headlines, but this doesn’t mean investors should write this market off yet.
WA’s economic fundamentals are still solid, and the property market remains a lucrative option for the savvy investor as prices return to more sustainable levels, says Paul Blackburne, managing director of Blackburne Property Group.
“Given Perth’s population is still growing rapidly and supply is limited, I expect to see growth rates of 5–6% for the next year,” he says.
Cameron Kusher, senior research analyst at RP Data, agrees that while property values are trending at a more moderate pace compared with their peak, home values are still rising.
Investors in Perth are also less likely to lose money on their investments compared with investors in Melbourne, Brisbane and Adelaide, as long as they hold their properties longer than one year, according to the latest Pain and gain report by RP Data.
Only 5% of homes that were resold in Perth over the March quarter sold for less than the purchase price, which is a significant drop from 6.4% a year ago.
No properties that were resold in Bassendean, Kalamunda and Peppermint Grove recorded any losses during the same period. In contrast, about 18% of all properties resold in Mandurah suffered losses, while more than 12% of properties resold in Cottesloe and Claremont made losses.
First home buyers doing it tough
Recent data from the Real Estate Institute of WA (REIWA) indicates that interest among first home buyers in the Perth market has been waning.
However, REIWA president David Airey says there has been particularly strong sales activity reported recently in the northeast region of Perth through to the City of Swan and the Shire of Kalamunda and Gosnells in the southeast region.
“The number of properties on the market is trending back strongly towards Perth’s long- term average, up by 16% in the three months to May and putting 10,665 properties up for sale,” Airey says.
“This is a reflection of a range of factors, but most notable is weak interest from investors and much slower activity from first home buyers. Together this is adding to stock.”
Indeed, according to the latest Herron Todd White Report, Perth’s selling days are now down to their lowest (49 days) for the first time in eight years, and there are low interest rates, a low number of listings as well as a slow release of lots to the market by developers.
The report indicates that these factors have had the result of increasing the median house price to unaffordable levels for some first home buyers, and increasing the amount of time buyers take to reach a decision about whether or not to purchase.
Risks to consider
While Kusher is generally positive about the prospects of the Perth market, he warns investors to be vigilant about the changing nature of the resources sector.
“WA investor activity is not particularly high; however, investors need to be aware that peak growth in values has seemingly passed and they need to understand the impacts of the slowing of investment in the resources sector,” he says.
“I think we will see further weakness in resource areas, a moderate pick-up in the coastal lifestyle market and fairly moderate value growth in Perth. Overall I expect value growth to be sluggish but probably within the slowly recovering coastal markets of southwest WA.”
Linda Janice Phillips, national research manager at Propell, forecasts an average price drop of 1–2% in 2014/15 but says in the medium term prices will settle again.
“Buying into a declining market is always a risk, but there are suburbs that are likely to outperform and deliver growth,” she says. “Inner-city northern suburbs with easy access to the city and strong public transport services are doing well, including Mount Lawley, Northbridge, Leederville, Yokine and Glendalough. On the edge of the city, lower-cost areas like Canning Vale and Ellenbrook continue to grow, while the quality western suburb of Claremont offers good upmarket opportunities.”
Suburb to watch: Thornlie
In recent years, Thornlie has been a hit with property investors, tenants and residents alike, due to its affordable price tags and proximity to the Perth CBD. Located 18km southeast of the city, the suburb offers residents great shopping alternatives, including Forest Lakes, Thornlie Square and Spencer Village. There are bus and train routes that provide regular services to the CBD, plus there is easy access to the Roe and Tonkin Highways.
Overall, there is a good mix of old and new properties in Thornlie, ranging from very large to small – not to mention residential subdivisions like Crestwood Estate that are aimed at providing affordable housing for young homebuyers. The fact that big houses are affordable here, but close to the city, is a major drawcard for families. And the range of properties and services available also means the suburb attracts a wide variety of cultures and age groups. There is also quick access to the airport, and some residents complain of aircraft noise. But buying towards the Forest Lakes side is a good option to minimise the sound.
The figures for Thornlie make for very good reading, particularly for units. They are a bargain at the moment at a median price of $315,000, and yields are promising 6%. Prices have only grown 2% in the last 12 months and 5% over the last three years, meaning there is plenty of room for growth. And properties here generally spend only about 50 days on the market, meaning they are getting snapped up regularly.
