Prices have fallen to a more realistic level, yet buyer sentiment remains weak. Experts say the pain could go on for longer
In May 2008, Perth’s median house price was the second highest in the country at $513,000, just behind Sydney’s $579,500.
Seven years on, Perth has fallen well behind the bigger capital cities. At a median house price of $530,000, it’s now significantly lower than Sydney’s $880,000, Melbourne’s $620,200, Darwin’s $572,500 and Canberra’s $588,000.
Indeed, it’s a case of how the mighty has fallen. And based on the current sentiment, the downturn looks set to get even worse.
Angie Zigomanis, senior research analyst at BIS Shrapnel, is particularly pessimistic about the near- to medium-term outlook for Perth.
“I expect more downside to the Perth market,” he says. “I think it’s too early to get back in. Perth’s recovery is looking like two to three years away from now.”
The main problem, according to Zigomanis, is the fact that a lot of mining projects are still winding down and the state government doesn’t have a big war chest to boost the economy.
“Perth is really a one-trick pony and just reliant on the mining sector, and with mining coming off, it’s going to get even weaker. Arguably, Perth values have already fallen dramatically. However, I think there’s still scope for it to fall further. I think it will bottom out in about three years.”
Zigomanis expects prices to fall between 3% and 5% this year.
The latest data from CoreLogic RP Data certainly confirms the recent weakness. Since the beginning of the year, Perth’s median house price has fallen by 2.4%, the biggest drop of all other capital cities. During the past 12 months, the median price grew by just 1%.
The stats from Domain show an even weaker trend. During the three months ending March, house prices fell by 2.1% and down by 2.8% year-on-year.
“Perth is still looking dodgy,” says Andrew Wilson, chief economist at Domain. “Overall, the market has been suffering due to a slowing resources sector. The clear problem is confidence. It’s almost an expectational thing. Vendors and buyers have started to pull their heads in because they’ve been told that prices are going to fall.”
Rental market weakens too
As if the drop in values is not enough, landlords in Perth are also confronting the prospect of lower income as vacancies rise and rental growth declines.
According to the latest report from the Real Estate Institute of Australia, the median rent for three-bedroom houses rose in all capital cities during the March quarter, except in Perth and Darwin. Compared to the same quarter of 2014, the Perth median rent dropped by 6.4%, while Darwin lost 8.3%. Units are just as soft. During the same period, the median unit rent in Perth dropped by 4.5%.
Vacancies are also looking precarious with Perth recording a 4.4% vacancy rate during the quarter.
Bright spots
Despite the overall softness of the Perth market, there are areas that are defying the downturn. According to CoreLogic RP Data, these suburbs are among the top gainers for the past 12 months.
SUBURB TO WATCH
Cannington: Something for everyone in this Perth suburb
Cannington is just 13km from the Perth CBD and close to both the Perth Airport and Fremantle. Transport to all these areas is relatively easy, thanks to the suburb’s proximity to major roads (such as the Albany Highway) and the Cannington, Beckenham and Queens Park railway stations.
Within the suburb is one of Perth’s largest shopping complexes, Westfield Carousel. Cannington is also not far from Bentley Hospital, Curtin University and quality schools.
This suburb is therefore popular with a wide demographic, including families, professionals and students. It also helps that it’s generally green and serene.
Even though there a few areas that are somewhat affected by aircraft noise, this is something many residents are not too concerned about.
This year, a plan was put forward for a proposed third runway and a new terminal, potentially creating many more employment opportunities for the area. Perth Airport already provides 17,800 jobs and contributes $2.61bn to the gross regional product of WA.
There are also industrial areas nearby in suburbs such as Welshpool and Kewdale which provide excellent opportunities for Cannington’s residents.
Houses on Crawford Street are close to buses, trains, Westfield Carousel and Curtin University. Three-bedroom houses can be bought there for less than $500,000.
