Perth February 2017

The Smartline Report – February Edition

The month in review: Perth

By Herron Todd White
February 2017

We begin 2017 with a great deal of caution as to what the year will bring. On the surface, there appears to be a lot of trepidation and a lack of consumer confidence in the local market, although this is somewhat segmented.

According to the Real Estate Institute of Western Australia, total listings on market currently sits at 14,444 properties, a slight decrease from the same time last year. Listings on market peaked in March 2016 at 15,200 and has hovered in the low 14,000s since. Traditionally, a balanced market is considered to be in the order of 12,000 listings.

The median sale price has tracked a very similar course, beginning 2017 at $520,000, being a slight decrease from the $533,000 reported at the same time last year.

The rental market begins the year with a 6.6% vacancy rate, up a full percent on the same time last year.

These statistics reflect the softening conditions experienced throughout 2016 and we consider that they are likely to continue throughout 2017.

However, there are some positives to be taken out of the current market conditions.

Firstly, the widely reported end of the mining boom is old news. It doesn’t sell newspapers anymore. The market has become accustomed to bad news, hence there is no shock value left in these headlines. In November 2016, Rio Tinto announced that they were cutting more jobs in their iron division, widely reported to be up to 500 jobs. This headline caused barely a ripple to the wider market, as it has become commonplace for many firms to reduce the number of employees on their books and replace them with a contracted workforce for various financial reasons.

Secondly, the state election is due to occur on 11 March. Thankfully, this will be over and done with early in the year, removing another aspect creating uncertainty in the market. The main benefit however, is that elections bring a flurry of promises, incentives and capital works. Whilst the current state deficit is likely to lead to a more subdued round of political promises, there will still be plenty. The political campaigns are well underway, with both parties announcing capital works programs and it is likely the Federal Government will assist the incumbent Liberal party with some more cash sweeteners.

The standing Liberal government recently announced changes to the First Home Buyers Grant, whereby the grant will be restricted to new dwellings only, with a $5,000 increase for contracts entered into before 31 December 2017. Various builders and unit developers have already reported a significant increase in buyer enquiry since the announcement of changes to the grant and this is likely to kickstart a very subdued construction industry. The more important effect however is likely to be the ability for unit developers to shift more affordable inner city units that have been sitting vacant post construction. The grant does not apply to vacant land, hence developers specialising in off the plan products or spec built houses are likely to be the large winners. Given the choice of a house and land package 30 kilometres from the CBD or a 2-bedroom inner city apartment for the same price, buyers are likely to head to the city in larger numbers than usual – use the grant and buy a product that is built, ready to move into. It makes sense. The large caution that we offer to the lending industry is that incentives and rebates are likely to be rife, whether it be furniture packages, vouchers, holidays or the like. We would always prefer to see price being the incentive – it makes for a much cleaner, more transparent market place for all.

The negative effect of the grant will be the established, traditional first home owner suburbs. These areas will face stiff competition from new developers who have the ability to offer attractive incentives to first home buyers. Sellers of established properties in areas such as Clarkson in the north, Baldivis in the south and Seville Grove in the southeast are likely to struggle to attract first home buyers.

For those owners in these areas affected by the post resource boom increase in unemployment rate, unfortunately 2017 is likely to see a significant increase in mortgagee in possession activity. Reduced values through 2015 and 2016 have led to many instances of negative equity, which is likely to be exacerbated as interest rates climb in the second half of the year.

Donald Trump. This is the big unknown. Hopefully by the time the state election is out of the way, the direction of the Trump government will become clear, being either an increased demand for resource products from nervous foreign entities or a broad period of financial uncertainty. Time will tell!

Putting all of the above aside, there remains a significant portion of the population that has stable employment, have either been paying down debt or increasing savings and are in position for some bargain hunting. We are likely to see some micro bursts of activity in certain areas as these buyers scramble for quality products. Areas on the watch list include Willetton, Bull Creek and Rossmoyne in the south and Carine, Duncraig and Karrinyup in the north.

We also expect an increase in speculative developer and investor activity, reflecting the lack of a premium currently being paid for these sites. We expect an increase in activity in Cloverdale, Cannington, St James, and Queens Park in the south-east and Morley and Balga in the north.

It would also not be an unlikely scenario that the current flurry of activity in Melbourne and Sydney leads to an increased focus on the comparative affordability of Perth – it has become extremely attractive in terms of value for money, with the added attraction of its proximity to Asia.

In summary, we expect an oversupply of established housing stock sub $1 million, particularly in the outer suburbs, a significant increase in apartment and off the plan villa transactions sub $500,000 and scattered upgrade and speculative investor activity as the market attempts to pick the bottom of the cycle.

Will we hit the bottom of the cycle in 2017? Possibly, but if we do, we would expect it to be late in the year. In saying that, we do not expect a significant reduction in values overall. We consider that the worst is over, with small fluctuations likely to occur throughout the year. Our prediction would be a median sale price at the end of the year in the order of $510,000.

Is there good buying in the market place today? Absolutely, but research and local knowledge are the keys.

Find out more information and to chat with a local Mortgage Broker in Perth.

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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