The Smartline Report – April Edition

The month in review: Perth

By Herron Todd White
April 2016

Fringe areas of Perth are showing definite signs of an easing trend as demand has fallen dramatically over the previous 12 months. Properties are commonly transacting below their previous sale or valuation amount. Negative equity situations remain a serious concern.

These areas have typically been driven by high demand from both investors and first home buyers, however supply appears to be far stronger than current demand due to multiple factors. Part of the issue has been the dramatic increase in land values in these areas which usually begin life targeting first home buyers but experienced a very strong uplift in values during the resource boom on the back of strong net migration figures. This created significant affordability issues and first home buyers were pushed further away from the CBD.

The neighbouring suburbs of Ellenbrook, Aveley, Brabham and Dayton on the north eastern fringe of Perth are very good examples. Ellenbrook and Aveley are very successful, somewhat established master planned communities of some 30,000 residents, while the newly establishing suburbs of Brabham and Dayton are situated slightly to the south. The driver for demand in the area has been the ability to live in a modern community with a reasonable choice of housing. On the negative side, transport throughout the area is limited to bus services and private vehicles as there is no current train service to the area. The affordability of the area was attractive for investors during the rental squeeze experienced during the resources boom, with strong rental returns on offer. This led to a surge in demand and a subsequent increase in values, which has since subsided. Further, the area is likely to experience significant supply for the foreseeable future and as such we would expect land values to ease in line with current established housing statistics and is therefore unattractive in the short term. The long term outlook of the area remains strong as much needed infrastructure comes to fruition, however yields are unlikely to improve dramatically in the short term.

The northern suburb of Butler is another interesting proposition. The suburb is situated adjacent to the coastal suburbs of Jindalee and Alkimos, some 40 kilometres north of the Perth CBD. Growth has been subdued in the area over the previous five years with just a 0.6% change in the median house price and more recent reports of a reduction in the median house price by 3% in the past 12 months and 0.7% over the previous quarter. The proposed extension of the Mitchell Freeway will not extend all the way to Butler but it will get it several suburbs closer which is bound to have a positive flow on effect in the future. The area remains attractive due to its affordability and promise of a near to the coast lifestyle. Yields are expected to improve as coastal suburbs are developed and the appeal of the area increases.

The southern suburb of Baldivis is also experiencing subdued performance due to its fringe location, extensive supply of land and a reluctance by local developers to re-price their land estates. Baldivis has long been seen as a haven for first home buyers, with ample parkland, new public facilities including several schools and modern shopping facilities. Similar to many fringe areas, new construction has slowed as demand has waned. There is a multitude of newly constructed dwellings on the market for less than replacement cost, hence the short term outlook is less than positive. It is common for properties not immaculately presented or of a less than desirable quality to battle to attract any interest and it’s a true buyer’s market. Land values require adjusting to reinvigorate the appeal of the area before the effects of oversupply really hit and the suburb begins to stagnate.

Unfortunately the fringe areas of Perth are unlikely to experience any significant increase in demand in the short term unless land pricing is reviewed or construction costs ease. We would expect established properties in these areas to perform better than house and land packages in the short term and yields to stagnate.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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