By Herron Todd White
The Western Australian government has maintained that strong border restrictions will continue as long as required, amid news that phase five of the state’s easing of COVID-19 restrictions has been delayed until 1 August. The state’s Police Commissioner has also suggested stopping all planes from Victoria from entering the state in order to reduce the risk of new cases. On 19 July, the Western Derby was due to host a sell-out crowd of 60,000 at Optus Stadium, however as phase 5 was postponed, there was a limit of 30,000 in attendance as a precaution. As of 13 July, the state had 22 active cases, all of which were in hotel quarantine. Western Australia also had 604 people out of the total 635 confirmed cases fully recover from the virus.
The Real Estate Institute of Western Australia (REIWA) confirmed that June recorded the highest amount of sales recorded in a month in Perth since 2015, with transactions increasing 55.1 per cent compared to May and also 45 per cent higher compared to June 2019. This was supported mainly by the 289 per cent increase in land sales for the month with 1471 sales recorded, as competition for land increased in line with government incentives. Over the first week of July, sales activity within Perth increased by 35 per cent from the previous week, with a reported 1318 transactions recorded during that period. These figures are vastly different to figures recorded at the end of March, which recorded just 426 transactions.
The Perth median house price fell slightly in the June 2020 quarter to $475,000, compared to the $479,000 price recorded over the March quarter. The Perth median house price for the June 2019 quarter was $489,000. There were 10,407 properties listed for sale at the end of the first week of July, which was a 17 per cent decrease from listed stock at the end of March and a 29 per cent fall in listed stock from the same period last year.
REIWA reported that there were currently 3963 properties available for rent at the end of the first week of July, which was a 27 per cent decrease from the end of March and 47 per cent decline from the same period in July last year. Perth’s median rental price for June was listed at $350 per week which was a seven per cent decrease from the March 2020 quarter and a three per cent fall from the same time last year, which indicates that rents within the state have remained stable throughout the COVID-19 pandemic with declining vacancy rates and the ban on increasing rents for established properties still being active.
The vacancy rate in Greater Perth has fallen to a mere 2.2 per cent with REIWA President Damian Collins expecting further decreases due to plummeting rental listings. The vacancy rate has been in steady decline since early in 2017 when it peaked at just above seven per cent. Western Australia hasn’t seen vacancy rates sub-two per cent since the end of the mining boom in 2012 and 2013.
In general, residential investment around Perth has been minimal over the past year, with specific property types and locations seeing small bursts of activity, however this doesn’t mean that investment isn’t viable. In fact, there are plenty of opportunities for a variety of reasons. An example of this is older units in sought after locations. Suburbs such as Maylands and Wembley can offer good yields for the entry-level investor.
Maylands is situated four kilometres north-east of the Perth CBD. REIWA reports the unit median at $290,000 for the March 2020 quarter, falling eight per cent since the year previous. The capital growth prospects aren’t great for most 1960’s to 1980’s apartments and flats, however for entrylevel product in the low $100,000s, yields can be impressive.
This 44 square metre, 1970’s unit on Caledonian Avenue is situated close to shops and Maylands train station, with great access to Guilford Road. It sold in December 2019 for $110,000 after 10 days on the market. The property comprises one bedroom, one bathroom and is situated on the top floor of a 52 unit walk-up complex. It was recently listed for rent at $200 per week, showing a notional gross yield of 9.5 per cent.
For comparison, this 2020 built unit with 48 square metres of living area comprises one bedroom and one bathroom situated on the first floor of a 123 unit complex. It sold in February 2020 for $320,000 and has recently been listed for rent at $340 per week, showing a notional yield of 5.5 per cent. Prospects for capital growth in this newly built unit are unfortunately similar to the 1970’s unit on Caledonian Avenue as chronic oversupply of both new and old apartments hinders opportunity for capital gains, however both units have appeal – one for gross return and the other for depreciation benefits.
This circa 1977 built unit sold for $180,000 in May 2019 and comprises two bedrooms, one bathroom and one car space with 50 square metres of living area. It was listed for rent in June 2020 for $250 showing a notional yield of 7.2 per cent.
Switching to a different type of profile, wealthy upgrade buyers have been spotting potential in good locations close to the CBD. Suburbs such as Cottesloe and South Perth present opportunity for prudent home-searchers who have the equity to hold two mortgages temporarily. They choose their preferred location, wait for the right property to come to market, make the purchase and then rent it out until the ideal time to renovate or redevelop.
This property was purchased back in late 2016 for $3.6 million. The circa 1962 dwelling comprises four bedrooms, two bathrooms and a double garage on a 911 square metre allotment. As you can see from Figure 8, the property is well located and captures views of South Cottesloe Beach and the Indian Ocean. The purchasers rented it out almost immediately and with its R20 zoning, the property has subdivision potential for two lots or would be a prime candidate for a high-spec new development.
This Griver Street property sold in April 2016 for $1.9 million after a 24 day marketing campaign. The circa 1960 dwelling comprises three bedrooms, two bathrooms and a double carport on a 969 square metre allotment. The property has been subject to a lease since purchase at $600 per week and could benefit from a little TLC, so a renovation could bring it back to its former glory, however it’s ripe for redevelopment with a luxury residence.
On the outskirts of Perth, investment activity has been reasonably subdued. The Coronavirus pandemic has unsettled many potential investors and consumer sentiment has fallen off a cliff, decreasing from 93.7 points to 87.9 points in the Westpac-Melbourne Institute Index of Consumer Sentiment between June and July. This being said, the difference from state to state could be fairly dramatic and with Western Australia’s current climate of affordability, it is still an attractive time to buy if you can find the right property at the right price.
Yields in oversupplied areas such as Baldivis, Ellenbrook and Byford are reasonable, but not amazing. The Greater Perth average yield for the March 2020 quarter was 4.1 per cent for houses, and 4.7 per cent for units. This property at Songlark Court, Baldivis sold for $425,000 in 2016 and was recently listed for rent at $370 per week showing a notional yield of 4.5 per cent, however values in Baldivis have fallen an average of 16 per cent since the last sale and with oversupply still prevalent and building incentives rampant, there isn’t much opportunity for capital gains.
This property at Bunya Green, Byford sold for $365,000 in February 2020. The circa 2004 dwelling comprises four bedrooms, two bathrooms and a double garage with 155 square metres of living area on a 450 square metre allotment. It was advertised for rent in June at $350 per week showing a notional yield of five per cent.
Where returns do start to improve is in regional Western Australia. Areas such as Kalgoorlie- Boulder, Port Hedland and Karratha can see yields anywhere between five and 15 per cent and beyond.
Our valuers are reporting that the Kalgoorlie market has been strong throughout 2020. Stock levels are the lowest they have been in a long time and there is plenty of demand. This hasn’t yet resulted in price increases or any influx of investors, however vacancy rates are on par with or even lower than in Perth and this rental demand could be enticing to bring investors back to the market. The majority of sales that our valuers are seeing have been well-presented, green-title dwellings for owner-occupiers.
This duplex unit at Morley Way, South Kalgoorlie sold for $200,000 in September 2018 after a very lengthy marketing campaign. The property was originally advertised in September 2014 for $289,000. The price was reduced multiple times however the campaign was abandoned in January 2017 after 859 days on market. It was then relisted in July 2017 and took another 435 days to finally sell. The property comprises three bedrooms, one bathroom and single carport with 77 square metres of living area. The unit was listed for rent in June 2020 for $320 per week, showing a notional yield of 8.3 per cent.
Moving up to the Pilbarra, Karratha has been experiencing seemingly exponential growth over the past two years. Owner-occupiers and investors have stuck their hands in the honeypot and most have come off with strong returns. The median house price in Karratha increased five per cent over the March 2020 quarter to $420,000, increasing 23.5 per cent since 2019. The unit median has skyrocketed by 46.2 per cent over the past year, settling at $193,750 for the March quarter. The median dwelling rent decreased slightly over the March quarter to $550, however it has grown by 29.4 per cent year-on-year.
This circa 2014-built unit was sold in 2019 for $192,000 after a single day on the market. The Pegs Creek property comprises two bedrooms, one bathroom and a single undercover car space with 51 square metres of living area. It has been listed for rent at $480 per week for a notional yield of 13 per cent.
This green-title Baynton property was sold for $365,000 in 2018 after 110 days on the market. The circa 2005 dwelling comprises four bedrooms, two bathrooms and a double garage on a 642 square metre allotment. The property was listed for rent at $1000 per week showing a notional yield of 14.3 per cent – quite the return!
South Hedland has been showing consistent returns of between 10 and 15 per cent in 2020. This Sturt Place property sold for $190,000 in May 2020. The circa 1975 dwelling comprises four bedrooms, one bathroom and a double carport on a 519 square metre allotment. It was listed for rent in July for $500 per week showing a notional yield of 13.7 per cent.
This property sold for $370,000 in April 2020 after two days on the market. The circa 1997 dwelling comprises four bedrooms, two bathrooms with a double carport on a 701 square metre allotment. The property also has a pool and a shed which has been converted to a one bedroom, one-bathroom granny flat. It has recently been advertised for rent at $800 per week showing a notional yield of 11.2 per cent.
Travelling to the southern side of Western Australia, the South-West region has been inundated with short-stay accommodation demand as border restrictions have prevented any interstate or overseas travel. This has been bolstered by the recent school holidays as flocks of residents from Perth and wider parts of the state head south for a holiday. This has played into the investor market as there has been a lot of building activity within the Margaret River region from principal homeowners constructing a studio or ancillary accommodation to rent on an AirBnB basis. Homeowners have been investing in their principal residence and the renovation stimulus is helping that.
Overall though, there hasn’t been an overabundance of investors in the South-West recently. The tightening of credit surrounding investors did slow down that segment of the market in the lead up to COVID-19 and there has been no real change in the purchaser profile since the pandemic hit. There doesn’t seem to be a fear of the second wave at the moment as market activity remains strong amongst owner-occupiers. Hopefully our Coronavirus statistics remain low, as we have seen it can all change in a matter of days.
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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.