The numbers may be bleak at the moment, but Perth’s medium- to long-term prospects aren’t that dire, according to experts
The painful cycle of market correction continues in Perth, with the latest data from CoreLogic RP Data showing a drop of 0.7% in the median dwelling price for the July quarter.
Since the beginning of the year when dwelling values fell 0.3%, property investment has only delivered a measly 3.9% in total returns, compared to Sydney’s 22.8% total gross returns.
Tim Lawless, head of research at CoreLogic RP Data, says Perth’s home values have remained relatively steady over the past year; however, the unit market suffered a big drop of 5.7% over the year.
Stats from other data providers show similarly weak trend. Domain logged a 0.9% drop in the median house price over the June quarter, while the Real Estate Institute of WA recorded a $20,000 drop in the median house price during the same period.
“I expect modest buyer activity and weakening house price growth for the remainder of 2015. The weak local economy is certainly weighing on the housing market. With the resource sector declining and unemployment rising sharply, it’s going to be a soft market,” says Andrew Wilson, chief economist at Domain.
Crisis of confidence
While the figures are grim and are expected to remain that way in the near term, Wilson believes the Perth market still has reasonable prospects.
“The Perth market has been talked down a lot lately,” he says. “Even the local industry body are talking themselves into a downturn. And this could turn into a crisis of confidence. While the results are not strong yet, they’re pretty reasonable.”
Deloitte Access Economics agrees that WA’s economy has weakened significantly, but it sees three things that are working the way of the West:
- Most notably, hundreds of billions of dollars in investment might be moving out of the construction phase, but the production phase is underwriting good growth in export volumes.
- At the same time, low interest rates have been a boon for the state’s retailers and housing construction markets.
- And the Australian dollar’s fall has reduced what would otherwise have been even greater pressures on miners and farmers.
“That’s why the outlook are still pretty positive. Growth slows sharply until 2016, but this still mostly looks like a passing storm rather than troubles that will stick around for too long,” Deloitte Access Economics noted in its recent report.
Wilson adds that the key to restored confidence in the Perth housing market is improved economic performance, early signs of which are now emerging. In addition, first home buyers are still active in the market, and the unemployment rate is still relatively low at 5.3%.
“They still have the unemployment rate with a ‘5’ in front of it. A lot of capital cities would love to have the jobless rate that Perth has. I’m not saying it’s a good market now, but it’s a flat market.
“In my opinion, Perth is not a falling market. I don’t see the prospects of a sharp shake-out in prices, which was being predicted this year.”
Construction activity holding up
Despite the falling commodity prices, WA still has the lion’s share of engineering work due for completion between now and 2017.
According to Deloitte Access Economics, the $112bn worth of projects underway in WA is more than double the total value of engineering work in NSW, Victoria, SA and Tasmania combined.
“For now at least, construction activity is holding up thanks to ongoing work in a small number of very large projects in the gas sector,” it says.
The combined value of the Gorgon, Wheatstone and Prelude LNG projects alone is estimated at over $102bn, and accounts for around $1 in every $3 invested in engineering projects across the country, says Deloitte.
In addition, the report noted that around $400m worth of new utilities infrastructure and transport projects was announced in the recent state budget. And despite the soft price environment, Woodside has approved the $1.2bn Persephone gas project, with construction to begin in 2018.
SUBURB TO WATCH
Safety Bay: Great bang for your buck
Safety Bay is great value for money for a number of reasons. Firstly, it’s hard to find anywhere better for beachside living, as residents can take advantage of boating opportunities or go to Penguin Island and enjoy the abundance of wildlife and lookouts there.
The suburb is well served by the Kwinana Freeway, which can take residents to Perth in 45 minutes. Safety Bay is also not a long drive from Fremantle (30 minutes) and Mandurah (20 minutes).
There are schools and shops in the suburb itself, but there are more located in neighbouring Rockingham where there is also a campus of Murdoch University.
Current demand for this suburb is shown by its vacancy rate of 1.64%, according to Real Estate Investar. It also has predicted growth of a strong 8% per annum over the next eight years, according to OnTheHouse.com.au.
For gorgeous views, there are excellent options available on Warnbro Beach Road. You can see Penguin Island and even Mandurah from these properties. The only downside is it can cost north of $800,000 for a four-bedroom house there.
For more affordable options, three-bedroom houses on Barbados Close are not too far from transport, schools, shops and Centenary Park. Three-bedroom houses in this quiet cul-de-sac can be picked up for less than $400,000.
Overall, this is a good suburb for families and retirees.
