As the market continues to weaken, buying opportunities open up further for investors looking to buy low
There’s no other way to put it. The Perth market is in a downturn and it’s looking like this will continue over the next two years.
According to Angie Zigomanis, senior research analyst at BIS Shrapnel, the Perth market, along with Darwin’s, is forecast to deteriorate progressively as the resources sector declines further. “Buyers’ demand is now tapering off, with demand across first home buyers, subsequent home buyers and investors all beginning to weaken,” he says.
The waning demand is exacerbated by dwindling overseas migration and growing interstate migration outflow.
“Perth’s median house price is forecast to continue to fall over 2015 to 2016 and start to stabilise in 2017 when mining investment is expected to bottom out,” Zigomanis says.
BIS Shrapnel expects the median to drop by 3% over the next three years.
Buying and selling in the current market
Prices in most typical suburbs have eased by around $20,000 in the last year or so, and Linda Phillips, senior economist at Propell Ltd, expects house prices to fall another $10,000 next year. She expects apartment prices may fall as much as $30,000 over the same period.
“For anyone buying into the Perth market, the name of the game is to try and pay next year’s price today. Perth is a buyer’s market, with prices softening as the state recession continues.
Prices may remain weak for a couple of years before staging a recovery from about 2017/18 onwards, Phillips says.
While there is a lot of stock on the market, the level of turnover remains good, and quality and well-priced properties are still selling.
But the price point has to be spot on, says Callen Deverell, residential manager WA, Propell Ltd. “If a property is well priced, then it will sell quickly enough. But many vendors are still looking at last year’s prices and adding some, and if their property is priced $25,000 or more too high, then purchasers will not even bother turning up to inspect it.”
According to figures supplied by Real Estate Institute of Western Australia (REIWA), there are 14,250 properties listed for sale, up from 11,000 a year ago. A figure of 10,000 is usually taken to represent a balanced market, so it is definitely a buyers’ market.
“With so many properties on the market, investors need to do their research in a suburb. It is a matter of identifying, say, a dozen properties which appear to be most competitively priced, then doing their homework, inspecting all of them and negotiating hard. In this market, it is still possible to make a good purchase,” advises Phillips.
State of the rental market
According to REIWA, vacancy rates across Perth jumped 4.9% in May to their highest level in six years, amid a growing supply of rental properties. At the same time median rents fell by $25 per week compared to a year ago.
REIWA president David Airey says WA’s slowing population growth has created the oversupply, along with a significant number of newly constructed dwellings coming to completion.
“The competition among property owners is having an effect on price. Perth’s median rent peaked at $475 per week in the middle of 2013 but has since fallen by $50, or around 10% across the board. The long-term equilibrium for Perth’s vacancy rate is 3%, so the current situation means there are more than 50% more properties on the market than is usual,” says Airey.
Rents at the top end of the market have suffered the most since the end of the mining boom, as fewer people earn high enough wages to justify renting premium property. According to Phillips, the worst rental markets are on the northern and southern fringes of the city, where considerable development of basic four-bedroom, two-bathroom properties has led to an oversupply and high vacancies.
In contrast, rents in the CBD and the better inner-city suburbs remain high, with properties keenly sought.
“This is a good example of the old real estate adage, ‘location, location, location’,” says Phillips. “The highest demand for rental property is close to the city, and demand recedes as distance from the CBD increases. For an investor, buying at the right price is only half the equation. It is no good getting a good deal if you cannot rent out a property, or experience lengthy periods when it is empty.”
Rental demand is also strong near employment nodes such as Cockburn Central and Canning Vale in the south, and Scarborough and Joondalup in the north, and suburbs surrounding these nodes offer the best opportunities.
Looming oversupply
Phillips notes the apartment sector is oversupplied, with 3,000 units on the market and 10,000 more planned. Of these, according to Urbis, 1,900 are in the inner city, nearly 1,000 in Fremantle or south of it, and 438 around Cockburn Central.
“Inner-city units are well supported, but there are concerns about the high number being built in suburban locations ... As a result, prices are expected to weaken in 2016,” she says.
SUBURB TO WATCH
Victoria Park: Prime position for professionals
Yuppies, take note. Victoria Park is just 3km from the Perth CBD and there are excellent bus and rain options to get residents there. Students also enjoy the easy access to WA’s largest university, Curtin University. Then there’s the terrific range of cafes, restaurants and shops in and around the suburb.
It is a preferred destination, particularly for young professionals, as shown by its median age of 32 (five years below the national median) and the fact that the median household income is $193 above the national median, according to the most recent ABS census.
This demographic tends to favour units over houses, and in this suburb the former outnumber the latter by 3,813 to 2,482. In terms of units, one- and two-bedroom apartments are especially popular with young couples and students. For those looking at houses, character homes are a safe bet.
The popularity of this suburb is indicated by the fact that it has a 100% auction clearance rate for units and there’s just 1.36% of stock on the market, according to DSRdata.com.au. The average rental yield of 5% per annum is also a noteworthy statistic for investors.
There are some great apartments available on McCallum Lane which have easy access to the CBD, Curtin University and the airport.
