Overall the market may be struggling, but regional WA is managing to outperform Perth
The unemployment rate in Perth has dropped slightly in the past few months in a further blow to this struggling city, which continues to experience declining property prices, apartment oversupply and negative rental growth.
According to Gareth Aird of Institutional Banking & Markets, rising vacancy rates are also expected to exacerbate these problems further.
Oversupply is a risk for many other states, but its effects can already be observed in Perth.
Greville Pabst, executive chairman of WBP Property Group, says the present market for both off-the-plan and established apartments is weaker than last year’s due to apartment oversupply, which has placed downward pressure on both rental returns and sale prices. Currently, the estimated rental vacancy rate is very high, at 5.7%.
“The Perth market is segmented, with the gap attributable to a divergence in demand,” Pabst explains. “Demand for well-located family homes in good public school catchment zones, as well as inner-city established houses within 15km of the Perth CBD, remains high. In contrast, demand is soft in outlying suburbs and for investment properties.”
The Herron Todd White Month in Review report for June 2016 also indicates that the top end of the property market in southwest WA “continues to be problematic, with continuing weak demand and an oversupply of properties for sale”. This may be associated with the weakening of mining investments.
Southern suburbs shine
Nonetheless, areas south of Perth are standing out in a challenging market, according to the Real Estate Institute of Western Australia.
Although pockets of the area continue to suffer from the mining sector downturn, REIWA president Hayden Groves says regional WA experienced “positive overall price growth across houses, units and land in the three months to March 2016”.
“It’s really pleasing to see that regional WA’s overall median price lifted 1.3% over the quarter,” Groves says.
“In particular, units experienced the biggest quarterly growth in median price, lifting 6%. This can mostly be attributed to the Mandurah-Murray region, which saw its median unit price improve significantly to $390,000 over the March quarter from $320,000 in the December quarter 2015.”
Specifically, Bunbury in the southwest peaked in terms of its quarterly median house price in the March quarter, rising by 5.6% to $395,000. The sales volume also increased by 6%.
However, Herron Todd White notes that the rural residential market as a whole has slowed over the past year, with sales below $1m. Selling periods are also longer, and rents have dropped considerably, particularly in outlying areas.
“Overall, it is likely the property market in the South West for the remainder of 2016 will be slow,”
Herron Todd White states. “We would recommend caution as the slowdown in the state resource sector, continued weakness in Perth and general economic uncertainty could promote more of a widespread downturn throughout the market.”
Demand in Perth weakens
In the volatile metro market, there is a considerable gap in performance between the inner-city suburbs and the outer-ring ones.
In response to oversupply problems, the building of housing is slowing down, and fewer developments are expected to begin construction in the following year. However, this has caused sales volumes and the demand for land to decline.
Over the past few months the number of properties on the market has been above average, at approximately 15,000 properties up for sale and just over 10,000 on the rental market in the Perth metro. This suggests that the housing market is stabilising.
Likely due to the drop in demand, the Property Council of Australia reports that rents have nosedived by 8.5% in Perth, which has been attributed to the end of the mining boom.
Nonetheless, Ellen Witte of SGS Economics notes that rents remain acceptable given that affordability has soared in Perth in the past couple of years, making this capital the most affordable metro city in Australia.
Still, Herron Todd White experts debate whether the Perth market is already at the bottom of the property cycle or will continue to decline throughout the year.
“Many desirable areas have seen downward pressure on values, hence we are hearing about (and seeing) many contracts that appear to be well below current market parameters,” Herron Todd White states.
SUBURB TO WATCH
Innaloo: Perth neighbour increases in affordability
Widely known for housing the largest cinema complex in Perth, Innaloo is one of the city’s most established residential areas. It certainly is a haven for entertainment – aside from the 18-cinema complex, it is also home to two major shopping centres. Innaloo has a wealth of restaurants and cafes as a result.
As a neighbour to sought-after Scarborough and to Perth itself, Innaloo’s location has made it an expensive suburb compared to the WA average. However, its affordability has increased recently. This makes it a good residential option for those working in the nearby metro.
Innaloo is considered to be well served by public transport. Buses and trains are both available. The train service connects the suburb to Scarborough, and Perth is merely roughly 15 minutes by car.
