Poor performance to linger longer
Investors in Perth should brace themselves for a slow market this year as the market consolidates further
After enjoying healthy gains in 2012 and 2013, Perth’s abysmal performance during 2014 was quite a bitter pill to swallow for many property owners.
Property values rose by a paltry 0.6% over the year to February 2015 and recorded the biggest drop in median dwelling values for the month, losing 2.2%, according to CoreLogic RP Data.
This resulted in the lowest total returns achieved by any capital city in Australia, at just 4.8%. Even Hobart performed better by achieving 6.1% total gross returns.
Experts say property owners shouldn’t expect too much this year either. The city is still suffering from poor affordability as a result of astronomical price growth recorded two years ago. Weakening economic activity and the excess housing supply are expected to drag prices and sentiment even lower.
But there are reasons to be optimistic
Despite these weak top-line numbers, Domain’s Andrew Wilson believes Perth’s fundamentals remain solid compared to most state economies.
“Rising unemployment and lower economic growth, driven primarily by the decline in the resources sector, are impacting housing market activity. Despite this, the local Perth economy remains relatively well placed compared to most other state economies,” he says.
He expects prices to remain steady over 2015, thanks to a number of positives in the market, including:
- The proportion of first home buyers exceeds all other capital city markets.
- The prospect of rising activity in the prestige market will continue to support overall price growth.
- Lower interest rates will also provide a stimulus to aspirational buyers in middle price ranges.
- The recent solid performances in Perth’s higher-priced city suburban areas will continue, with moderate buyer activity in the mid- and budget-range regions of the north, south, southwest and east.
Wilson forecasts Perth’s median house prices to rise between 1% and 3% over 2015.
Terry Ryder of Hotspotting.com.au agrees that while the market may look weak, there are suburbs that are still growing strongly.
“The median price for Perth is going nowhere, but some suburbs last year had double-digit price growth, even as the city overall only grew 1–2%. There are always opportunities, particularly in affordable areas with good infrastructure.”
In his view, the middle- to outer-ring suburbs such as the LGAs of Wanneroo and Armadale are good places to start.
New developments watch
According to PRDnationwide Research, there are a number of developments that are coming online around Perth this year. While a new housing development can be positive for the suburb, it can also impact on the market in a negative way.
The downside is that the new housing supply will add to the existing pool of properties that compete for demand from both buyers and renters.
The upside is that the new stock will be priced higher than the older stock, setting a new benchmark for property values. This will lift median values overall. If the new stock is priced significantly higher than existing stock, this will also make older properties more attractive.
PRDnationwide compiled a report on the new housing developments currently underway near Perth and highlighted the following suburbs:
Distance from CBD: 10km
Median unit price: $380,000
There are total of six residential development projects valued at $165m, consisting of 535 new units and apartments, expected to break ground in early to mid-2015.
Distance from CBD: 17km
Median unit price: $489,000
There’s an estimated $7.3m worth of new developments in the suburb, which include a $1m upgrade of the Royal George Hotel and the $6m Point Wharf works.
Distance from CBD: 11km
Median unit price: $375,000
New projects worth $45m are due to start this year, including 200 new units targeting first home buyers.
SUBURB TO WATCH
Glendalough: Perth’sbest-kept secret
Glendalough is the most affordable suburb within 10km of Perth’s CBD. Dubbed one of the city’s best-kept secrets, this suburb provides easy access to practically everything but with no high property price tag. With units at such great prices, this area has the potential to see some good returns.
Its proximity to the inner city has made Glendalough very popular with young professionals and established couples. Situated just off the Mitchell
Freeway, it is less than a 10-minute drive from the CBD. Bus services also run regularly throughout the area, and the Glendalough train station is in the north of the suburb.
There is a small shopping centre on Harborne Street, but the main commercial hub is in neighbouring Osbourne Park. The recently refurbished Main Street commercial centre offers a range of restaurants, supermarkets, a medical centre and library. With Herdsman Lake bordering the west of the suburb and Lake Monger to the south, there is also ample opportunity to enjoy the outdoors.
Units and apartments make up over 50% of all dwellings in the suburb. With a 14% increase in median prices over the last five years, growth in the area has been steady and is expected to continue as more investors see the potential for future capital.
Glendalough is also much cheaper than neighbouring Churchlands ($470,000) and Mount Hawthorn ($575,000). Popular areas include Harborne Street and Rawlins Street as they are perfectly placed between the two lakes and in close proximity to shopping.
Can you afford to buy in this suburb? Find out how much you can borrow