Perth July 2018

The month in review: Perth

By Herron Todd White
July 2018

The median sale price in Perth has remained fairly stable since our previous lazy half million dollar edition in July 2017, only slightly decreasing from $515,000 to $510,000, although after sales have settled this figure should increase to $517,000. Currently in Perth, what home buyers will receive for their lazy half million seems to be the best value on offer since 2010 to 2013.

There continues to be stagnation in the Perth market but this tends to be focused around fringe areas that are suffering from oversupply. Consumer and business confidence is slowly increasing and mining investment is expected to find its footing once again. We are already seeing the effects of expansion into new resource areas such as lithium along with the large scale development of new iron ore mines required to maintain current supply levels. Future employment trends are also looking positive and whilst interest rates are still low, the fundamentals are looking strong. Prices will inevitably increase at some point, with purchasing in current market conditions appearing to be a less risky venture than it was 12 months ago.

In previous editions we have written extensively about what can be purchased in outlying suburbs offering generous levels of new supply from large scale land developments. Affordable land values in outer suburbs have been key for many first home buyers in securing the funding for the type of dwelling construction that they desire, but this can create a barrier for inner-city workers. For many young CBD commuters, living so far out from the centre of Perth presents a big issue in terms of quality of life as they feel the strain of being timepoor and living further away from recreational amenities and entertainment hubs. With significantly heavy traffic in peak periods it can take a long time for employees to reach their place of work in the morning and again to get home in the evening and in many suburbs, public transport is severely lacking.

One solution for this issue is to purchase property closer to the CBD, but as land values increase once you approach the inner suburbs, potential buyers may need to sacrifice a combination of land size, construction quality, age or functionality, or consider purchasing in less desirable areas with potential socio-economic issues or stigma from past issues.

This being said, if you can reach above the $450,000 threshold there are plenty of options that represent brand new construction in Perth, either in the form of new subdivisions or newly built apartments and strata units. Furthermore, if you are willing to sacrifice ultra-modern construction and purchase a more dated established dwelling, there is a plethora of opportunities within 15 kilometres of the CBD for investors and owner-occupiers. Currently in many inner suburbs you can purchase a substantially liveable property for close to land value. These types of properties also create potential for good returns on developments in the form of subdivision, or basic demolish and rebuild for owner-occupiers.

So what are some key areas to look out for in the current market? Suburbs such as Karawara, St James, Maylands, Bayswater, Joondanna, Willagee, Kingsley and Warwick all express strong buying at present, with median house prices stretching between $440,000 and $640,000. Calleya Estate located in Treeby some 16 kilometres from the CBD is a popular new development area if you are looking for green title house and land packages. Close to Cockburn Shopping Centre, Treeby also boasts great access links to the Kwinana Freeway and Roe Highway.

Pictured above is a 4-bedroom, 2-bathroom, circa 2016 built dwelling on a 375 square metre block of land. It is listed on the market for just under our lazy half million dollars.

Entry into suburbs within 15 kilometres of the CBD is likely the easiest it will be for some years and for many of these areas we anticipate the potential for gradual but sustained growth. Suburbs such as Hamilton Hill, Spearwood and Coolbellup are all undergoing gentrification as recent zoning changes have sparked mum and dad developers to realise the profitability of their large land parcels. It is a great time for downsizers as there is a myriad of local and international interest in purchasing development sites, with premiums decreasing significantly over the past six months. Rental yields of around 3.5% to 4% are seen in Coolbellup (realestate.com.au) and with the potential for capital growth, investment in these suburbs is warranted.

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Pictured above is an example of a typical development site being purchased in the current market. It includes a 1960s dwelling on a 985 square metre block of land. Located in Coolbellup, 15 kilometres from the CBD and zoned R30, it has potential for three lots and is currently listed for under our lazy half a million dollars.

Let’s now take a look at some property specific examples situated closer to the CBD to give you another picture of what can be purchased for your lazy half million today.

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Pushing a little above our half a million mark, this fully renovated 3-bedroom 2-bathroom 1950s dwelling on 493 square metres of land in St James sold in May 2018 for $535,000. St James is situated just seven kilometres from the CBD, a five minute bike ride from Curtin University and is close to the popular café strip along Albany Highway. The median house price in St James is currently $532,750.

Pictured below is another St James property. This 2 storey, rear strata unit sold in May for $498,000. Built in 2012, it comes with 3-bedrooms, 2-bathrooms and maximises the use of its 200 square metre allotment.

Perth

Maylands is an older suburb located four kilometres from the CBD. The median house price is $607,500, but most advertised properties in this suburb are for strata units and townhouses. The median unit price has decreased from $410,000 in 2017 to $360,000 this year. This can be attributed to an increase in listings from competing newly completed developments and stagnant demand. Maylands currently represents a good area to live or invest in with a unit rental yield of 3.5% and strong capital growth prospects in the long term (realestate.com. au).

Another viable prospect is the established suburb of Karawara. The following photo is of a house in Karawara which was originally built in 1977, but has undergone recent renovations and is situated on its original 621 square metres of land. The property was purchased for $485,000 in February this year, with the price representing a figure close to land value.

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Perth 6

Bayswater is also an affordable, near city suburb. Pictured below is a 1975 built 3-bedroom, 1-bathroom dwelling situated on a 769 square metre allotment just six kilometres from the city centre. The property transacted in March this year for $470,000, again below our lazy half a million dollars. There are a number of similar houses currently on the market close to the CBD which appear to represent good buying opportunities under the lazy half a million dollar mark. A lazy half million can get you a decent parcel of land so don’t be too quick in dismissing properties with dated construction as large lots can offer potential for growth.

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The property pictured above is located in the suburb of Joondanna, five kilometres from the Perth CBD. This visually impressive 3-bedroom, 1-bathroom dwelling with an almost barn-style aesthetic sold for $470,000 in March this year. Although situated on a triplex strata, it is a street front lot and displays a great alternative to house and land packages 30 kilometres from the CBD.

Looking into Perth’s apartment market, $500,000 represents an abundance of opportunity in current conditions. Vacancy rates are slowly decreasing but there is still a large amount of stock that needs to be absorbed. The lazy half a million can get you a brand new 2-bedroom, 2-bathroom apartment in an area such as East Perth, Applecross, South Perth, Mount Pleasant, Como, Burswood, Victoria Park, East Victoria Park or Rivervale with this apartment layout attracting fair demand. 1-bedroom and 2-bedroom, 1-bathroom apartments tend to require longer selling periods but can also offer larger discounts.

Values in East Perth have slumped significantly over the past couple of years. The majority of apartments built prior to 2011 have decreased in value since 2012 and 2013, many by up to a factor of 25%.

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An example of this is the circa 2002 built 2-bedroom, 1-bathroom apartment pictured above, situated in Hay Street, East Perth. It was purchased in 2013 for $423,000. The kitchen was subsequently renovated and the property sold earlier this year for $322,500 after some four months on the market.

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The above unit provides a similar example. It comprises of a 2-bedroom, 1-bathroom apartment in East Perth and was purchased for $407,000 in November 2012. The apartment resold in February 2018 for $320,000.

These offerings are significantly below our $500,000 price point and therefore your lazy half a million dollars will achieve one of these and plenty of spare change. If you look towards East Perth, South Perth or Burswood you may find some of these dated apartments that have the capacity for future prosperity, but we do urge caution with which units offer the best value. Look at the variables that could assist in increasing the suburb’s demand such as new transport infrastructure or redevelopment of entertainment districts, shopping centres, schools and other amenities. East Perth may see an uplift in values as vacancy rates slowly decrease and the newly completed Optus Stadium is also just on the other side of the Swan River which is another attractive selling point.

According to CoreLogic data, at the end of the March quarter Perth’s gross rental yield was at 3.8%, whereas Sydney and Melbourne’s yields were 2.9% and 2.6% respectively. This is expected as our eastern state counterparts have significantly higher median prices. Yet as Melbourne and Sydney’s prices are set to fall, their rental yields may not increase at the same rate. As stated in last month’s edition, population increases in Western Australia are slowly reducing the volume of rental properties available, resulting in an increase in Perth’s rental prices.

As house price fluctuations generally follow the rental market we may see some expansion of yields before any significant growth in capital.

To summarise, investors should be looking to the west for opportunities to spend their half a million dollars – the value for money proposition at the moment appears solid. There is a plethora of properties that present great value for money with functional spaces and large parcels of land to be kilometres of the CBD. Zoning changes around the city mean that there is development potential in a lot of areas which mum and dad developers are taking advantage of.

Use caution, engage a local property professional to guide you through the maze of higher yields versus capital growth opportunities. The lazy half million certainly goes a long, long way right now.

DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.