Perth December 2017

The month in review: Perth

By Herron Todd White
December 2017

The year was expected to bring us more stable market conditions overall, with some pockets of upgrade activity being countered by minor corrections in the established, sub $1 million housing market and an increase in mortgagee sales activity throughout the year. In response to changes to the First Home Buyer Grant, a significant increase in apartment and off the plan villa transactions was expected. Lastly, we forecast a median sale price of $510,000 at year’s end.

Our predictions played out to be fairly close to the mark for the most part. We underestimated the role that lending restrictions would play in the established housing market for first home buyers and the effect that would have on the remainder of the market. We also assumed that interest rates were likely to rise in the latter half of the year. Thankfully interest rates have remained low but the first home buyer market has been interesting to say the least.

Our expectations of significant improvements in the volume of unit sales was incorrect, due to a large number of issues discussed later in this article. Sales volumes are down 17% in comparison to the previous year. Established house sales also experienced a decline, with transaction volume being some 20% lower than 2016. Interestingly, the median land price rose by 20% from the September quarter, reaching a figure of $300,000 although this corresponded with a 75% fall in transactions. Last year’s statistics surprised us with a similar result and was subsequently corrected after all final adjustments had been made and we expect a similar correction this year.

Close to our predictions, the statistics for the September quarter provided an unadjusted median house price of $499,000, down from $520,000 last year. After adjustments, the median price is expected to land slightly higher at $515,000 according to the Real Estate Institute of WA – just $5,000 off our prediction.

It is safe to say that Perth is experiencing positive signs of stability, supported by improvements across most key indicators of market performance. Consistent market conditions over the June and September quarters seem to have boosted the confidence level of our inhabitants. Six months of market stability has also given many an answer to the everlasting question, has the market hit rock bottom? We can now say that a significant decrease in property values would cause jaw dropping reactions – we believe we are at or have already seen the bottom of the market in most areas, with some exceptions.

Aligned with our predictions, established housing below $1 million is still experiencing soft market conditions, but there has been an improvement in activity in many areas. We have seen a very interesting mix of activity in the established mortgage belt, but buyers appear to be extremely price sensitive, causing a solid link between listing price and level of activity. Properties listed at or slightly below actual value often attract multiple offers. Established housing sub $1 million was predicted to remain in oversupply, although the trend has tightened more than our expectations. As of the week ending 7 November 2017, there were 14,494 properties listed for sale. Listings are down 4% from the same time last year and the sales proportion of property type has remained almost identical. Average selling days have increased slightly over the past year reaching an average of 70 days, which is an increase of three days from the September quarter.

Outer suburbs such as Baldivis and Alkimos are experiencing declining activity at an increased speed. According to realestate.com, Baldivis has approximately two years of supply sitting on the market with a current sales activity rate of just 5.6%. Market activity in Alkimos is even worse, sitting at around 3.6%, however the suburb is not oversupplied to the same extent. We have also seen a significant increase in mortgagee in possession activity across the whole metropolitan area, although the bulk of these have been concentrated in outlying, more traditional first home buyer areas such as Ellenbrook, Baldivis, Clarkson and Byford.

Mandurah is also a prime example of the varied buyer demand we are currently experiencing. Upgraders are willing to pay reasonable prices for high end properties in good locations as well as high quality rural properties loaded with ancillary improvements. In the meantime, conventional dwellings have suffered declining values of between 5% and 10% over the last year along with limited sales.

The reluctance of first home buyers to embrace apartment living has remained strong for most of the year. Apartment and off the plan villa transactions were expected to increase as a result of changes to the First Home Buyer Grant, however sales are down from last year’s September quarter. In more recent weeks however, the inner city has shown positive signs of improvement, demonstrated by increasing numbers of people attending home opens along with often multiple offers being received. The demand applies to newly constructed apartments where anything constructed pre 2010 is struggling. It is evident that further price corrections are needed in order to improve demand.

The largest and somewhat most concerning aspect of the market throughout the year, was that rather than first home buyers being tempted by brand new, well priced inner city apartments, quite often they found they still couldn’t afford to purchase these properties, or to be more accurate, they could not secure finance. They also could not raise the correct deposit for established housing, hence the only market left was the house and land package market. What we witnessed throughout 2017 and what has been one of the largest influences on the market as a whole is that incentives by developers in land estates and from building companies themselves often combined to be the ONLY way many buyers could enter the market. The issue with this is that much of this activity is in areas that are already chronically oversupplied and the result was that there was reasonable demand for a house and land package, but almost no buyer demand for a one year old dwelling. Buyers could only secure funding by relying on various incentives buried within contracts (and sometimes as a side contract) and many developers and builders are very happy to help such buyers navigate such a finance approval process. Given the fragile nature of such borrowers, the rate of mortgagee activity in these areas rose dramatically during the year and dare we say it, continues to rise now.

On a brighter note, we have certainly seen micro bursts of activity in sought after areas as a result of improved consumer confidence, with such activity concentrated on traditional upgrade or aspirational areas. In particular, prestige areas such as Cottesloe, Dalkeith and North Beach along with other traditional upgrade areas are experiencing impressive rises in property values. Cottesloe is taking the lead with an 18.5% rise over the last year. It is safe to say that we are, for the first time in several years, witnessing a shortage of supply in such areas. Buyers have started to realise that they can afford to upgrade, but most importantly, they have gained the confidence to upgrade. The fear of missing out on a bargain has also played a part in the sudden improvement of activity. The heavy jump in demand has already led to increases in property values in many locations.

The rental market started off the year with a 6.6% vacancy rate and was expected to remain high throughout 2017. Not far from our predictions, the September quarter came back with a slight increase to 6.9%, down from 7.3% in the previous quarter. During this period, house rents fell by 8% to $350 and unit rents by 7% to $325. The gap between rent for units and housing is decreasing at an increasing pace. There are 9,359 properties currently listed for rent in comparison to 10,570 last year. The average unit rental price in relation to the median unit price has remained relatively stable providing a yield of 4.28% for this September quarter in comparison to 4.23% last year. Housing provided a slightly lower average return of 3.6%, compared to 3.8% last year.

In summary, the overall market has stabilised over the past 12 months, providing positive signs for Perth’s property market. As predicted in our February article, Perth is experiencing significant variations of activity. Values are up by up to 18.5% in some areas, while others are still significantly oversupplied and subject to increased supply due solely to the vagaries of the finance options to a significant portion of the market. Properties within more sought after areas are in high demand from upgraders and we have already seen significant increases in property values in some areas. Established suburbs have remained in oversupply, however for the right price, it is not rare to see multiple offers according to our valuers. During the past few weeks, we have seen increasing interest in inner city apartments, mainly by first home buyers.

Overall, our February predictions played out quite well and we would give ourselves a score of eight out of ten.

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