By Herron Todd White
December 2019

Our property market predictions in February’s edition of the Month in Review forecast a reasonably stable 2019 overall. We were concerned about the gap between value growth in the inner versus the outer suburbs and expected greater Perth to continue its downward trend towards the bottom of the market, driven mostly by poor performances of newer land estates on Perth’s urban fringe. The most positive news was the strength of Perth’s rental market. This has continued throughout the interim, as the median weekly rental has held up at $350 per week.

REIWA states that the rental vacancy rate has improved for the second quarter in a row, lowering to 2.5 percent. This is likely due to Western Australia’s net migration figures. From mid-2016 to late in 2017, Western Australia was receiving less people than were leaving the state, however, this has since been reversed and we are now seeing an upward trend, pushing net migration into the positive again.

Significant mineral resource investment is one factor influencing Western Australia’s population over the year. In an article in August 2019 by Mark Beyer in Business News, he said:

“Of the 12 biggest mining projects underway or likely to proceed this year, seven are in the iron ore sector. The expected investment in the iron ore projects is $17 billion, out of a total investment of $20 billion across the top 12 mining projects.” (BusinessNews.com.au, 2019).

These mining ventures by the likes of BHP, FMG, Rio Tinto and more are presumed to create 11,000 jobs for the construction stage alone. There is no doubt that these projects have already and will continue to generate demand for a number of skilled and specialised employees. Historically, resource sector wages have been very attractive to local, national, and international workers so this could help to bolster Western Australia’s population again. As stated in previous editions, large net migration figures impact the rental market first, as many migrants choose to rent before looking to purchase a property.

Due to the known effects of the last mining boom and bust, workers from interstate or overseas are hesitant to purchase property when moving to Western Australia, as the well-documented slump of Perth’s property market could have imposed a more conservative and cautious attitude in potential buyers. Perth has, however, felt the effects of the net migration increase over the past few quarters as negative median house price growth has continued to diminish.

With the data available in February we reported a median house price of $510,000 for greater Perth, however, after-sales had settled it turns out that the median was closer to $500,000. The September 2019 quarter has shown a median house price of $480,000, equalling a decrease of four percent from February to September.

Sales activity in the greater Perth region decreased by four percent during the September 2019 quarter with 7,050 sales recorded. REIWA reported a three percent fall in house sales, two percent rise in unit sales and a 17 percent fall in vacant land sales. This decrease indicates that Perth’s developing suburbs are suffering. The oversupply of land in fringe locations continues to be detrimental to greater Perth’s overall median house price.

The property shown in Figure 2 was purchased in April 2014 for $410,000. The circa 2006 Baldivis home comprises four bedrooms, two bathrooms and a double garage on a 511 square metre allotment. It sold again in September 2019 for $280,000 after more than three years on the market showing a loss of $130,000 or 32 percent.

The property in Figure 3 was purchased in May 2015 for $498,000. The circa 2014 Byford property comprises four bedrooms, two bathrooms and a double garage on a 42 square metre allotment. It sold again in August 2019 for $418,000 after 121 days on the market, showing a loss of $80,000 or 16 percent.

The property in Figure 4 was purchased in September 2014 for $535,000. The circa 2007 Ellenbrook dwelling comprises four bedrooms, two bathrooms and a double garage on a 495 square metre allotment. It sold again exactly three years later in September 2019 for $380,000 showing a loss of $155,000 or 29 percent

The property in Figure 5 was purchased in  May 2014 for $392,000. The circa 2011 flute- style property comprises three bedrooms, two  bathrooms and a rear double garage on a 240 square metre allotment. It sold in June 2019 for $272,500 showing a decrease of just under $120,000 or 30 percent.

These examples paint a very poor picture for developing suburbs on the outskirts of Perth, but it is an unfortunate reality. The examples shown were extreme however it is very common to see properties in these locations having extended selling periods and selling with heavy discounts of between 10 and 20 percent. As covered in previous editions, suburbs with a large oversupply of land are seeing consistent median house price decreases, the reason being that the public can purchase their own land and build to their own specification cheaper than the established homes were previously bought for, so vendors must give significant discounts to sell established housing stock, otherwise they may face extended selling periods. This also ties in with the number of mortgagee properties that we have been seeing. The number of mortgagee-in-possession jobs received by our firm has almost doubled over the past three years.

Though the greater Perth market softened overall, there were some suburbs that bucked the trend and showed strong performances. These were mostly in affluent locations with median house prices that far surpassed the Perth median. As at August 2019 Swanbourne, Menora, Shelley, Mount Pleasant, Hillarys, Cottesloe, Trigg, Kensington and Waterford all had year-on-year median house price growth rates of between five and 20 percent. Those suburbs also took fewer days to achieve a sale than the Perth September 2019 quarter average of 84 days. This was four days slower than the quarter previous which was unsurprising since the September quarters usually see the least sales activity throughout the winter months.

In the year to September 2019, the highest growth suburbs in Western Australia were Newman, Pegs Creek, Lamington, Rossmoyne, Katanning, Nickol, South Hedland, Mullaloo, Port Hedland and South Bunbury, showing growth rates of between ten and 35 percent. Only two out of the ten suburbs listed were within greater Perth, showing that some regional locations are flourishing.

REIWA has recently reported that five of Western Australia’s nine regional centres have recorded an increase in sales activity of more than 19 percent over the September 2019 quarter. REIWA Deputy President Lisa Joyce said, “From a rental market perspective, properties are in high demand in the Karratha region, which is demonstrated by a 27 percent reduction in leasing activity and an increase of $68 per week in median rent – the highest of all regional centres for the quarter.” Ms Joyce attributes this to “an increase of jobs in the area, with existing companies expanding their workforce and new companies needing accommodation for their workers in the area.” Karratha’s median house price settled at $350,000 for the September 2019 quarter, showing an increase of 1.3 percent. Port Hedland was the other regional centre to record an improvement in the median house price, increasing by 2.8 percent to $236,500. Overall the regional Western Australian median settled at $315,000 for the September 2019 quarter, decreasing 1.6 percent but showing an increase in sales volumes of three percent. Back in Perth, first home buyer activity showed an improvement over the last quarter as seen in Figure 6. There were more sales under $599,000 in the September 2019 quarter than in the June quarter and REIWA states that 24 percent of all house transactions occurred at or below $350,000.

The increase in first home buyer activity may be attributed somewhat to changes to Keystart’s eligibility criteria. From 1 July 2019, Keystart’s income limit thresholds were increased by $15,000 for singles and couples to $105,000 and $130,000 respectively and increased by $20,000 for families to $155,000 for the metropolitan region. This would have allowed many more residents to qualify for stamp duty exemptions allowing more people to enter the market.

There were plenty more changes to economic, monetary and housing policy in 2019 in a bid to stimulate the overall economy, some of which we have covered in previous editions. On 2 October 2019, the cash rate was decreased by 25 basis points to a 60 year low of 0.75 percent. This was a relief for financiers and the Perth property market as a whole. The RBA was hoping the full 0.25 percent cut would be passed on to the end consumer, but unfortunately this did not prevail for most lenders.

The West Australian government has also introduced a 75 percent stamp duty discount for property buyers purchasing off-the-plan, pre-construction, multi-level apartments in an effort  to attract more density to inner areas of the Perth region.

Liberal’s federal election win was a positive for Perth’s housing market as Labor’s plans to limit negative gearing to new housing, halve the capital gains tax discount from 50 percent to 25 percent and limit negative gearing to new investment properties only may have increased the pain levels within an already suffering property market.

APRA made a few big changes in 2019, removing the cap on interest-only loans and changing lending criteria guidelines to allow brokers and banks more flexibility. The guideline changes will allow the average homeowner to borrow an extra nine percent, which goes a long way in the search for your perfect home.

To wrap up, I would score our February predictions an eight out of ten. We did not expect big changes in the property market and we thought 2019 would be a year spent searching for the market floor. The consensus remains that if we aren’t quite there, we are likely to be very close!

Speak with a Perth Mortgage Broker today.

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