Perth’s prices nosedive in comparison with other capitals
Following a price increase back in the December 2015 quarter, house prices in Perth are coming back down to earth, according to the Domain House Price Report for March quarter 2016
Nerida Conisbee, chief economist at REA Group, explains that overall conditions in the Perth housing market are still positive; however, they have slowed significantly since last year. “The gap between housing demand and supply is narrowing, driven by high levels of developments. While supply has been high, this is starting to moderate across almost all cities.”
In Perth, the median house price decreased during March quarter 2016 despite a slight rise in the previous quarter (the capital’s first increase in a year). According to Domain chief economist Andrew Wilson, this reflects how the capital will undergo “a slow journey back to price growth” following several years of decline. And Conisbee says that if the economic and political situation remains consistent, Perth should sustain growth in 2016 even if it is weaker than that of 2015.
Specifically, house prices experienced a 4.7% drop by the end of March quarter 2016 – possibly the biggest decrease of all the Australian capitals. The same was true for the unit market, as prices declined by 3.7% in the same quarter. In total, the 12-month price drop was 5.1%, the most significant decrease since late 2011. The downslide was particularly strong in regional WA, which saw 11.23% negative growth over the past year.
Rental rates in Perth plummeted by over 8%, based on the latest market update by Eliza Owen, market analyst at OnTheHouse.com.au. And in an 8 April media release, CoreLogic RP Data research analyst Cameron Kusher said, “We have been tracking the annual change in capital city rents since 1996 and this is the first time we have seen rental rates falling.”
The weakened economic conditions in Australia following the mining boom have been particularly detrimental to WA. The lack of employment opportunities may limit the demand for housing and population growth in this area, according to Conisbee. The state’s economy is having a negative impact on house prices. “Housing approval numbers are declining, while apartments remain flat,” she says.
“The economy hasn’t been performing well for some time,” Owen adds. “Resources have been diverted into the housing sector, which is not as productive as those of mining, which has suffered over 2015 as the commodity price index has halved.”
Nonetheless, “some of the budget suburbs in Perth are still doing OK,” Wilson says. “First-time buyers are active there.” For instance, the house market in the suburb of Jarrahdale is sustaining growth in the face of this decline. Growth over the past 12 months was 50%, up from 45% and 40% in the past three and five years, respectively. Overall property sales recovered by 20% in the week of 21 April following a drop in the previous week, and 19% of these were house sales.
According to an article published on Reiwa.com.au, Hayden Groves, president of REIWA, believes the median house price may increase as residents trade up to higher-priced homes. Moreover, the decreasing house prices represent a rise in affordability, which may reverse the region’s current direction. Perth also has an edge on Sydney in terms of housing development, Conisbee notes.
Meanwhile, units in Crawley have increased in value by 49% over the past year. The unit market in Wannanup also experienced remarkable growth from -14% five years ago to 41% in the previous 12 months. Groves suggests the supply of apartments is about to increase because some building projects are almost finished, but “supply is likely to remain at healthy levels”.
Furthermore, apartments in general are in demand in the inner-suburban areas of cities like Perth, given the nationwide shift to apartment living, according to Conisbee. And Owen notes that the lower prices of units cause their rental yields to surpass the yields of houses, making such properties a better investment option.
Lloyd Jenkins, managing director of CBRE Group in Perth, suggested in a Sydney Morning Herald
article that, despite the negative growth, the time may be ripe for investors to consider Perth, given its affordability compared to other regions in Eastern Australia.
Ruth Stroppiana, chief economist at Moody’s Analytics, supports the idea that Perth is merely bottoming out in terms of the commodity cycle – she expects Perth to report recovery in 2017 and 2018. This process should be helped by the sustained population growth and migration to the capital.
Conisbee also believes growth will be maintained, though it will be moderate.
“Western Australia is surprisingly not doing too badly despite rising unemployment,” she states. “Strong retail trade and construction activity is flowing through to economic growth.”
Wilson adds that unemployment rates began dropping in March, signalling recovery. “Perth still has prospects of finishing in the black by the end of this year.”
SUBURB TO WATCH
Leda: Attractive drawcard for students and young professionals
Leda is a major suburb in the City of Kwinana. With a median house price of just $312,000, it is one of the more affordable suburbs in the state.
Being only roughly 30 minutes away from Perth, Leda is mainly populated by younger adults in their
’20s and ’30s. A significant proportion of the market is composed of renters who enjoy this proximity. As a result, investors have enjoyed rental yields of over 5% for both houses and units over the past 12 months. The house market experienced a considerable decline of 6.9%, while units saw 1.2% growth. This is likely because the majority of the tenants are single.
There are two educational institutions in this suburb – a primary school and an education support centre. Access to the CBD is also easy via bus and train.
While Leda’s prospects for capital growth are on the low side based on CoreLogic RP Data stats,
OnTheHouse.com.au experts expect the housing market to recover in the next five years. Indeed, the influx of young professionals and the strong rental market could boost its profile in the near future.
Can you afford to buy in this suburb? Find out how much you can borrow