By Herron Todd White
In the 12 months to July 2019 there were over 21,000 house sales in the greater Perth region. REIWA data shows a median sale price of $485,000, some 2% lower than the previous quarter and 3.4% lower than the June quarter 2018. There were approximately 5,000 units sold in the same period with a median sale price of $385,000 – a 1% reduction compared to the March 2019 quarter and 5.5% lower than the June quarter 2018. Nearly 5,000 vacant lots were sold in the year to July 2019 with the supply of land continuing to outweigh demand.
A recent article from the REIWA stated that “The number of properties available for sale and rent have dropped to the lowest levels since late 2014, with only 13,831 properties listed for sale and 6,599 properties listed for rent on reiwa.com in August.” This isn’t too surprising since the June quarter generally sees the lowest sales and listing volumes due to the winter weather.
Perth’s rental market has continued its resilience against a subdued sales market, with the median weekly rental holding at $350 for the June quarter – a median of $360 for houses and $330 for units. It took an average of 43 days to lease a property in the greater Perth region for the June quarter 2019, reducing by two days from the previous figure of 45 days. As the days to lease diminishes so does the negative house price growth. CoreLogic’s latest home value index shows dwelling values in Perth declined for another month to 0.5% in August, yet the rate of decline is slowing, which is a positive indication that prices in Perth may be approaching the bottom.
The new Housing Affordability Report from the Real Estate Institute of Australia has indicated that rental affordability in Western Australia improved in the June quarter as the proportion of family income required to meet the median rent has marginally decreased by 0.1% to 16.4%, however this is still an increase of 0.1% compared to the same time in 2018.
So how does the current market fare for investors? The average yield for houses in greater Perth is 3.8%, generated from the $485,000 median house price and a $360 median weekly rental. Units prove to be a more lucrative asset, producing an average yield of 4.5% from the $385,000 median and $330 median weekly rental.
As always, these figures shift significantly depending on the property’s location. As an example, some of the lowest yields in Perth come from suburbs within the prestige market. Applecross, Cottesloe, Dalkeith, Mount Pleasant, Peppermint Grove, Shelley and Swanbourne all have yields ranging from just 1.8% to 2%. The median house prices in these suburbs range from $965,000 up to $3.575 million. The highest yields come from suburbs within the lower price band. Armadale, Butler, Camillo, Chidlow, Coodanup, Coogee, Cooloongup, Kwinana, Leda, Mandurah, Orelia, Parmelia, Stratton and Yangebup all hold the highest current yields for the greater Perth region. This suggests that on yield potential alone, some of the best suburbs to invest in are within the cities of Armadale, Kwinana, Mandurah and Rockingham, all being local authorities in traditional mortgage belt areas.
Big price reductions are being seen in greenfield estates on the outskirts of Perth. Established dwellings are experiencing long selling periods as the competitive financing options of house and land packages gives little encouragement to purchase anything near new, as such vendors are discounting multiple times in order to meet the market. This means that affordability in these areas keeps improving. Land estates in Baldivis, Byford and Ellenbrook have been hit hard.
The median house price in Ellenbrook has recoiled, receding by more than 20% since 2015. Byford’s median has fallen by 14.4% and Baldivis’s has dropped 15%. One factor contributing somewhat to falling house prices is the reduction in average lot sizes. The average lot size in Perth decreased from 580 square metres in 2010 to 375 square metres currently and the first micro-lots have just been finished in Ellenbrook with a total area of 80 square metres. Over the past decade, new zoning has created potential for smaller lots within land estates and has allowed for a flurry of subdivision in established suburbs all over Perth. The median house price in Baldivis for the June quarter was $390,000 with a weekly house rental of $350 showing a 4.7% yield. The median unit price was $189,000 with a weekly unit rental of $265 showing a 7.3% yield. Strong yields can be found for investors in Baldivis as established dwellings can be purchased for affordable prices, however caution must be used as we expect market values to continue softening in the coming months, so always engage a property professional before making a purchase decision. The cost of an up front valuation is a pittance compared to the risks it can identify.
This property shown in Figure 1 was purchased in July 2019 for $308,000. It was built in 2012 and comprises four bedrooms, two bathrooms and a double garage on a 521 square metre allotment. It was leased in November 2018 for $350 per week generating a gross yield of 5.9%.
The property shown in Figure 2 was purchased in August 2019 for $370,000. It was built in 2016 and comprises three bedrooms, two bathrooms and a double garage on a 419 square metre allotment. It was leased in May 2018 for $350 per week. The rental value may have decreased since this time, however it shows a gross yield of 4.9%.
This first-floor unit shown in Figure 3 was purchased in July 2019 for $200,000. It was built in 2014 and comprises two bedrooms, two bathrooms and one car space with 110 square metres of floor area. It was leased in April 2018 for $275 per week providing a gross yield of 7.2%.
The property shown in Figure 4 was purchased in August 2019 for $420,000. It was built in 2015 and comprises four bedrooms, two bathrooms and a double garage on 480 square metres of land. It was leased in December 2018 for $400 per week, reflecting a gross yield of 5%.
For investors looking to add apartments to their portfolio, older units in good locations can prove to be quite attractive on a gross return basis whilst appearing attractive from a capital growth point of view as well.
The property shown in Figure 5 sold for $270,000 in July 2018. Built in 2002, this apartment comprises one bedroom, one bathroom and one car bay with a floor area of 69 square metres. An identical unit in the complex was leased in April 2019 for $300 per week showing a gross yield of 5.7%. South Perth’s unit median settled at $567,750 for the June quarter 2019, increasing 0.1% since the March quarter.
The property shown in Figure 6 sold for $260,000 in July 2019. Built in 1973, the unit comprises three bedrooms, one bathroom and one car bay with a floor area of 77 square metres. It is currently advertised for lease at $295 per week showing a potential gross yield of 5.9%. Como’s unit median settled at $450,000 for the June quarter 2019, increasing 1.8% since the March quarter 2019
The property shown in Figure 7 sold for $156,500 in April 2019. This renovated 1968 ground floor apartment comprises one bedroom, one bathroom and one car bay with a 39 square metre floor area. A similar unit above was leased in April 2019 for $200 per week showing a 6.6% gross yield. Mount Lawley’s unit median settled at $410,000 for the June quarter 2019, increasing 5.1% since the March quarter 2019.
The property shown in Figure 8 sold in August 2018 for $197,000. This renovated 1969 first floor apartment comprises one bedroom, one bathroom and one car bay with a 39 square metre floor area. A similar unit in the same complex is leased for $215 per week showing a gross yield of 5.7%. The unit median in Mosman Park settled at $425,000 for the June quarter 2019, increasing 11.4% since the March quarter 2019 and 18.9% year-on-year.
Achieving high yielding assets could be seen as important in the current market whilst we await the return to capital growth. The strong rental market in Perth would definitely be keeping investors’ heads afloat as the gap between property value and gross rental return increases in some areas. Property investment is typically seen as a medium to long term venture as high costs are associated with both the purchasing and selling of dwellings, so depending on the investor’s profile, short term yields can be of little importance when buying in a secure location. At the current stage of Perth’s market cycle, purchasing in a good location with growth potential could end up being a fruitful venture.
Investors who purchased in the years leading up to the resources boom (2002 to 2006) may be looking towards reversion in the coming years as the completion of some 20-year mortgages may align with the peak of the next market cycle. The median house price has increased from $195,000 in 2002 to $485,000 currently, an increase of approximately 250%.
One popular asset that can generate high gross rental returns is student accommodation. Five to six and even seven-bedroom dwellings can be bought at fairly reasonable prices and the rooms leased individually for anywhere from $50 to $250 per week. Even though the returns are enticing, you do have to consider that there could be higher running costs such as management and maintenance, along with vacancy rates over the holiday period. Utilities are often included in the rent so the expenses can fluctuate quite significantly.
The property shown in Figure 9 was purchased in May 2019 for $450,000. Situated less than 200 metres from Curtin University, this townhouse built in 2000 comprises six bedrooms, three bathrooms and two car bays on a 247 square metre allotment. One of the rooms is currently being advertised at $140 per week. At this price, the property has a potential gross yield of 9.7%.
The property shown in Figure 10 was purchased in November 2018 for $612,500. Built in 2005 it comprises six bedrooms, six bathrooms and one car bay on a 428 square metre allotment. One of the rooms is advertised at $170 per week reflecting a gross yield potential of 8.7%. The highest yields in Western Australia are found in the regional centres close to mining resources activity. Kalgoorlie-Boulder’s median house price settled at $300,000 for the June quarter. With an average house rental of $360, the average yield is 6.2%. The unit median is currently $192,500 with a median rental price of $280 per week showing a yield of 7.5%. It takes an average of 43 days to lease a property in Kalgoorlie-Boulder.
The property shown in Figure 11 sold for $102,000 in July 2019. Built in 2000, it comprises one bedroom, one bathroom and one car space on a 201 square metre allotment. It is currently being advertised for rent at $280 per week creating a potential gross yield of 14.3%.
The property shown in Figure 12 sold for $300,000 in July 2019. Built in 2001 it comprises three bedrooms, two bathrooms and two car spaces on a 470 square metre allotment. It was leased in March 2018 for $400 per week showing a potential yield of 6.9%.
Karratha’s median house price settled at $345,000 for the June quarter. With an average house rental of $425, the average yield is 6.4%. The unit median is currently $155,000 with a median rental price of $388 per week showing a yield of 13%. It took an average of 40 days to lease a property in Karratha during the June quarter 2019, although recent activity indicates demand has increased significantly.
The property shown in Figure 13 was purchased in August 2019 for $476,000. The 2012 build comprises three bedrooms, two bathrooms and a double garage on a 400 square metre allotment. It was leased in June 2018 for $670 per week creating a potential gross yield of 7.3%.
The property shown in Figure 14 sold for $255,000 in July 2019. It was built in 1975 and comprises four bedrooms, one bathroom and a single carport on a 758 square metre allotment. It was leased in May 2019 for $380 per week showing a potential gross yield of 7.7%.
The wider Port Hedland area’s median house price settled at $225,000 for the June quarter. With an average house rental of $410 the average yield is 9.5%. The unit median is currently $171,500 with a median rental price of $320 per week showing a yield of 9.7%. It took an average of 51 days to lease a property in Hedland during the June quarter 2019, although recent agent feedback indicates demand has increased in the interim.
This property shown in Figure 15 sold for $179,000 in August 2019. It was built in 1970 and comprises three bedrooms, one bathroom and two carport spaces on a 477 square metre allotment. It was leased for $375 a week in September 2018, generating a potential yield of 10.9%.
The property shown in Figure 16 was purchased in July 2019 for $211,000. It has been renovated since the original construction in 1975 and comprises three bedrooms, one bathroom and two car spaces on a 436 square metre allotment. It was just listed for rent in September 2019 for $550 per week creating a potential gross yield of 13.6%.
Considering some of the rental returns we have spoken about, property investment can be a good alternative to set and forget ventures such as government bonds which achieve returns of between 1% and 4%. Many investors also enjoy the tangible aspect of owning property and it is a good way to diversify a portfolio.
Depending on your goal it is good to strike the right balance between gross rental income and capital growth. Securing a good location close to essential amenities should always generate good returns in investments with extended holding periods. As with any investment, the risk of each property should be assessed prior to making any decision, which is where your local property valuer’s knowledge can prove invaluable.
Speak with a Perth Mortgage Broker today.
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.