The month in review: Perth
By Herron Todd White
The boom of 2011 to 2013 was created by a significant undersupply of housing stock as a result of many consecutive years of positive net migration associated with the peak of the construction phase in the resource industry. Perth has witnessed such a cycle several times over the past decade however the reality is that there is no sign that such a significant increase in demand will be instigated by the resources industry any time soon (if ever). Anyone waiting for such a silver bullet is likely to be disappointed, and the market is taking time to adjust to the new norm – unstimulated market conditions.
Essentially the market is currently stimulated by personal circumstances rather than any particular industry. The significant bulk of workforce reductions which were expected post the resource industry construction boom have occurred (more to occur late in 2016 and through 2017), however net migration is currently very low – countering the effect of this potential unemployment. Western Australia’s population did increase in 2015, but by only 31,000 people which is less than the number of births recorded that year. Hence we haven’t seen any significant or rapid decline in the market – it has slowly occurred over the previous 18 months.
The Perth residential property market continues to adjust, however it remains a very patchy and segmented market. Published statistics make it appear that the market is relatively stable and can be quite confusing.
The number of properties on the market has been bouncing between 13,500 and 16,000 for almost 12 months with the most recent low of 8,200 a distant three years ago. Over that same period of time, the average number of days required to sell a property has increased from 49 to 66 days at present. However, it has taken a lot longer for this increase in supply and decline in demand to affect the median sale price, which has only changed from $525,000 in March 2013 to $551,500 in December 2014 and sits at $530,000 at present. The volume of sales occurring has stabilised and currently sits at around 500 per week – equivalent to the activity seen 12 months ago. As such, we would have expected that the median sale price would be lower than where it currently sits.
Now statistics will often tell one story, but anecdotal evidence from our valuers on the ground often put a different twist on these statistics and assist our understanding of what is really going on.
Chiefly, the market is being affected by several different segments which are counteracting each other – clouding the relevance of published statistics. The market remains over supplied with no real stimulus in sight. Mortgagee activity appears to be increasing. The rental vacancy rate continues to increase. While media reports indicate that 45% of all transactions were to first home buyers in the March quarter, this activity is sporadic. For example, Brookdale, with a median sale price of $340,000 has seen sales activity reduce from 61 in 2015 to 30 so far in 2016. Similarly, Langford with a median sale price of $422,000 recorded 97 sales in 2015, with only 53 recorded so far in 2016.
It is true that many other traditional first home buyer suburbs have experienced an increase in activity, however so have many prestige suburbs, and it all comes down to the fact that many of the fundamentals about “when do I buy” remain sound.
8Many employment sectors remain stable and money is relatively cheap in comparison to similar stages of previous market cycles, hence it’s a good opportunity for the upgrade market if they have job security. Premium areas such as Cottesloe, Nedlands, Dalkeith, Mount Pleasant and Applecross are all experiencing uplifts in sales volumes, particularly in the sub $2.5 million range. Cottesloe for example achieved 105 recorded sales in 2015, however has already recorded 99 sales in 2016. Similarly, Applecross achieved 109 sales in 2015, with 92 recorded so far in 2016. This activity is effectively balancing out the median sale price and makes the median sale price appear more stable than it may actually be – and it only takes stimulus or caution in either end of the market to tip the scales.
The market generally remains cautious with buyers taking longer to make their decisions and lining up their finances more securely before making a buying decision.
For instance, there is a higher incidence of stacked sales – offers conditional upon the buyer selling their property first and then accepting an offer on their property which is conditional on that buyer selling their property and so on. It’s a delicate stack of cards, however we are often seeing the individual sellers working together to ensure the stack doesn’t fall over. Post contract variations of $50,000 by the first seller in the line are not unheard of to ensure that the trailing deals can proceed.
Development sites that were the bees knees for mum and dad investors, self managed super funds and the like only three years ago have tanked, and in many instances there simply is no premium being paid for the underlying development potential. There is minimal demand, and prices have adjusted significantly – down by 25% in some instances through the City of Belmont. The story is similar for inner city apartments, which have been affected by a flood of product on the market, a significant decline in rental demand and a vacancy rate that continues to increase. Several proposed developments have minimal chance of proceeding to construction, with many new units re-selling below the contracted price. We are hearing many stories of fall over rates as high as 30% which are also not unheard of in the vacant land market.
All in all, there is no immediate driver to stimulate demand and given the state of Western Australia’s finances, we would not expect any increase in stimulus any time soon. Is the market right to be cautious? Yes, particularly dependent on your employment sector. Are there good opportunities to buy at the moment? Definitely. There are plenty of very good opportunities to upgrade into more desirable suburbs or pick up smaller development potential sites without paying a premium for the development potential.
What will spark the market? Not sure, but we do believe that the confidence of the individual consumer is the key. If there is a significant portion of the population comfortable with their employment situation, have been paying down debt/increasing savings account balances and are confident of their situation, we should see an uplift in activity in the short to medium term as the bargain hunters come to the fore. Failing this, we would assume that this stage of the cycle is likely to continue for the better part of 2017.