The Smartline Report – February Edition

The month in review: Perth

By Herron Todd White
February 2016

We would anticipate that 2016 is likely to end in a similar fashion to how it has commenced – with caution throughout most of the market, periods of opportunistic upgrade activity and a continuation of price correction in oversupplied sectors. While we don’t forecast 2016 to be all beer and skittles, we do believe we will finish the year with a higher level of optimism and a return to more balanced market activity, which is due relief following an extended period of uncertainty throughout 2015.

We expect the residential real estate market in Perth to maintain a correctional trend through the first half of 2016, particularly at the lower end of the market (sub $500,000). This sector is likely to be the most affected by continued correction in rental values, potential oversupply of small, modern apartments and villas and any speculation of increases in official interest rates.

As the financial position of many companies associated with the resources industry becomes more evident and consumers are satisfied with their level of job security and income flow, we believe that we will witness a surge in upgrade activity, particularly in the middle and later portions of the year, when the threat of interest rate rises is expected to become imminent. Many markets in this sector experienced price corrections in 2015 and hence are comparatively well priced in comparison to 2013 and 2014.

There appears to be pent up demand in the prestige market, driven by cautious decision making extending back to the GFC. We expect to see an increase in discretionary transactions in this sector throughout the latter part of 2016.

Throughout 2014 and 2015, there was an increase in affordable housing developments throughout the metro area and those that were focused on location, access to transport routes and employment hubs have fared reasonably well. We remain very cautions for those developments that do not meet these fundamentals and anticipate a decrease in demand for such products from both first home buyers and investors.

However, we remain most cautious about land values, particularly in areas more than 15 kilometres from the Perth CBD. The following graph as published by the Real Estate Institute of Western Australia indicates that land values are yet to suffer a correctional trend, as opposed to the established housing market which retracted throughout 2015. Further, the average size of vacant allotments released in 2015 decreased by some 9.2% according to the UDIA. While this sector undergoes a period of correction, we predict that there will be an increase in the proportion of transactions of established housing as it becomes a more cost effective option. Much will depend on the developer’s intent to offer rebates or incentives as opposed to wholesale adjustments in land pricing schedules.

Overall, we consider the market in 2016 will be a good opportunity for discretionary buyers, with an increase in upgrade activity persisting throughout the year. We would expect this to be concentrated along the coastal strip and established suburbs within ten kilometres of the Perth CBD.

We consider that the focus will change from modern products in outlying estates to older, established areas which comparatively, appear to represent good buying. Examples include Parkwood, St James, Koondoola and Morley.

The large dark cloud hanging over Perth however is any movement in interest rates which when combined with the previously strong period of investment and first home buyer activity followed by a period of wage adjustment and redundancies, is likely to lead to an increase in the rate of loan delinquency, which may exacerbate the current oversupply situation.

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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