Perth seems to be going in the direction that other state capitals, particularly Brisbane, is currently in, as supply for apartments continued to shrink.
Resolve Property Solutions buyer’s agent Peter Gavalas said the rising construction costs and lower buyer demand have created the current conditions where Perth apartment prices are currently lagging their replacement value.
“Perth’s property market is one of the strongest in the country, with a 1.9% annual gain over March, according to CoreLogic. But when you dig into the data, house values increased by 2.1% year-on-year compared to 0.2% for units, reflecting higher buyer demand for houses,” he said.
What’s driving more buyers to Perth’s housing market is the relative affordability versus other capital cities — as of March 2023, Perth has a median house price of $593,000, more affordable than the median price of $851,000 across the combined capitals.
“As a result, house values are keeping pace with soaring construction costs. Conversely, building costs are increasing faster than replacement value in the unit market,” Mr Gavalas said.
“This mismatch between construction costs and market value means some apartments are currently undervalued, creating an opportunity for savvy investors.”
On top of this, Mr Gavalas said construction costs are increasing far quicker than market value, leading to fewer apartment developments being launched as developers struggle to make numbers work.
“When new development projects do complete, their sales prices will have to reflect the higher construction costs – adding to the price pressures across the board,” he said.
Latest figures from the Australian Bureau of Statistics (ABS) show that dwelling unit approvals in Western Australia declined 6.4% monthly in February.
Mr Gavalas said that the shortage of new apartment developments would likely exacerbate Perth’s housing supply issues, putting yet more pressure on prices and rents.
“The situation is unlikely to improve anytime soon with the National Housing Finance and Investment Corporation’s recently released State of the Nation’s Housing Report 2022–23 highlighting a shortage of more than 25,000 homes in Perth by 2026, the worst shortfall in the country,” he said.
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Photo by Tourism Australia on Canva.
