Residents exit Western Australia as the market tries to anticipate the bottom of the cycle
Perth is not expected to bottom out any time this year, as economic conditions remain poor and mortgage interest rates are beginning to climb.
“Perth would certainly be affected because it’s a fragile market. Prices have come off already just because of the end of the investment mining boom, and now that interest rates are going up they will suffer some more,” says Philippe Brach, CEO of Multifocus Properties & Finance.
The state has over eight months’ worth of established housing on the market, which is contributing to falling values.
“The Perth property market is still in its slump, with a significant oversupply of properties for sale,” comments Michael Yardney, CEO of Metropole Property Strategists.
He says Perth also lost over 4,000 jobs in 2016, in contrast to the eastern states reporting job creation. This has factored into the state’s inability to unload dwellings to buyers.
“Price growth in the weaker markets is being stymied by a combination of excess stock and/or a weak local economic environment,” explains Angie Zigomanis, senior manager at BIS Oxford Economics, in the company’s Residential Property Prospects 2017 to 2020 report.
The report suggests this trend will continue in Perth in the near future due to slow population growth and excessive supply. As investment in the resource sector continues to go downhill, employment prospects are limited.
“Demand has weakened across all buyer segments, including first home buyers, changeover buyers, and investors,” Zigomanis says.
“Net overseas migration has weakened and the net interstate migration inflows became net outflows. Consequently, Perth’s vacancy rate of 5.6 per cent in March quarter 2017 is well above the balanced market rate of around 3%. Rents have also collapsed.”
Market set for resurgence
The city is set to catch a break soon, as economic conditions should hit their lowest point in 2018/19. The construction of new dwellings is also expected to come to a halt, thus addressing the issue of oversupply.
“An improving trend is expected to appear by 2019/20, with [the market] forecast to recover [its] losses,” the report indicates.
Affordability could certainly play a role in the recovery as prices continue to dip; thus, those who invest at this time could be reaping benefits soon if they are prepared to wait the storm out.
“Mining investment is expected to bottom out over 2017/18, with the excess supply also approaching a peak. Perth’s median house price is forecast to bottom out in 2017/18,” the report states.
SUBURB TO WATCH
Rivervale: House and unit prices sink
Originally known as Barndon Hill, the suburb of Rivervale lies near the Swan River, just 5km from the Perth CBD. Many amenities are therefore within easy reach, such as shops and schools. Perth Airport is also only a short drive away – thus, it could be an option for those who travel regularly.
With Perth being the site of several major universities, students likely comprise a significant proportion of Rivervale’s population. Nonetheless, the suburb is in a similar poor condition to Perth, with both house and unit values freefalling.
The drop in unit prices is less steep than the fall in house prices, possibly because of the already-low median value.