Things could get a lot tougher for the Perth market before it gets better
It turns out that the sudden rise in median values in Perth during December was just a flash in the pan – as suspected.
During January, median dwelling values resumed their downward trajectory, falling by 1%, according to CoreLogic RP Data. While Perth managed to eke out a 1.7% growth during the three month period, values were still down by 4.1% during the year.
“Over the past year, both houses and units across the city saw values fall, however house values fell by a much more substantial -4.4%, compared to a -0.4% fall across units,” says Tim Lawless, head of research at CoreLogic RP Data.
Domain’s latest results also showed Perth house prices falling significantly during the past 12 months.
“The Perth median house price is now the lowest recorded by the city since the March quarter 2013, with prices falling by 4.5% over 2015 – the sharpest annual decline since 2008,” says Andrew Wilson, senior economist with Domain.
Wilson notes that unit prices fell by 5% over 2015 – the sharpest annual decline since 2011.
However, he now sees some glimmer of light, albeit faintly, at the end of the tunnel.
“Although Perth’s median house price continues to fall as a result of the declining mining sector, it’s not all bad news,” he says. “There are early signs suggesting the rate of decline is moderating, as affordability improves and confidence recovers.”
However, the rental market looks set for more pain ahead with rents dropping substantially at a time when vacancy rates are surging.
According to the December stats from the Real Estate Institute of Western Australia (REIWA), median rents dropped by $40 per week during the December quarter, compared to the same period a year ago.
Rental listings also surged between September and December period, rising by 15%. Vacancy rates are now sitting at a high 6%. While one can argue that 96% of properties are still rented out, a 6% vacancy rates indicates an oversupplied and poor performing rental market.
While this is good news for tenants, investors will have to deal with a string of temporary, but difficult, circumstances, according to Hayden Groves, REIWA president.
“Migration trends have changed rapidly in WA over the past six months and housing supply has increased. This has caused demand for rental housing to lessen, putting downward pressure on prices,” he says.
The horrid phase is now beginning
The bad news, according to Deloitte Access Economics, is that the horrid phase for Western Australia is now beginning.
“Western Australia has gone from leading the nation to figuring rather more prominently at the other end of the scale,” it says in its report. “Unemployment in the State is rising fast, and is now above the national rate for the first time since 2003 as job growth throttles back to a near standstill. WA’s population is now growing more slowly than Australia’s. And as the population data is only available with a six-month lag, chances are that shortfall has continued to widen in the meantime.”
The engineering construction activity that has fuelled Western Australia during the mining boom is almost exhausted with a staggering $105 billion worth of gas projects to be completed by 2017.
With no significant projects to fill the hole, things could get awful for the state before it gets better.
“Western Australia’s moment of truth has been approaching for some time, but that doesn’t make it any less painful,” says the Deloitte Access Economics report.
“As is the case for Queensland, there is just no way public spending can ramp up on the scale required to avoid, or even partially, offset the drop off of engineering projects to any meaningful extent.”
However, the good news is that the horrid phase is both temporary and rather less horrid than past downturns, according to the economic forecaster.
“These forecasts point to a State that handles the transition from a resource construction boom to a resource export boom without huge dislocation. That may not sound like a great outcome, but it is.
In fact, business investment as a share of WA’s economy has already returned to its longer-term average. The difference is that it has further to fall before a period of recovery finally commences in this State.” Even more worrying is the fact that these are rising, according to CoreLogic RP
Data’s Pain and Gain report.
During the September quarter, 11.4% of homes sold across Perth achieved less than what the vendors bought them for. This is the highest level of loss-making resales since July 2012, the report says. The proportion of lossmaking sales has also increased by 5% compared to a year ago.
The report shows that 89.1% of investor stock was sold at a loss during the last quarter of 2015. The areas that suffered the highest resale losses were in the Perth council area, with more than a third (37.1%) of sales making a loss. Mandurah followed at 23.6% and the Nedlands at 20%.
SUBURB TO WATCH
Carlisle, WA: High demand set to fuel price growth
Located just 6km southeast of Perth, the suburb of Carlisle is becoming a hit with professionals and retirees.
According to Kim Findlay, director of Grange Realty Group, its proximity to train lines and the CBD makes it a desirable place to live.
“It’s almost an inner CBD extension,” he explains. There are a lot of professionals living here because Carlisle is close to the city. For the many students in the area, its proximity to universities is a factor. For retirees, the café strip lifestyle is attractive.”
Historically, Carlisle was dominated by tenants. “But it’s changing now,” says Findlay. “A growing number of owner-occupiers are taking advantage of the affordable prices currently. There are fewer investors than before because Perth is experiencing a downturn at the moment, and rents have dropped. But I believe it’s just a phase,” he says.
The suburb enjoys a range of amenities, including a vibrant café strip and a sports stadium. The West Coast Eagles is also relocating its sports club to Carlisle.
“Carlisle is going through a transformation at the moment,” says Findlay. “The Victoria Park café strip is being redeveloped, and the Crown entertainment strip is being upgraded. “
The best buys, according to Findlay, are three-bedroom, two-bathroom houses. “These homes are built on 1,000sq m pieces of land. Most blocks can accommodate about three properties each,” he says.
