Perth June 2018

The month in review: Perth

By Herron Todd White
June 2018

Over the past year, it has been well documented that Perth’s housing market has been stagnant in many sectors, but with evidence of positive performance in others. According to the Real Estate Institute of Western Australia (REIWA), the residential housing market has seen little annual change overall.

The December 2017 quarter showed signs of a very small swing in the right direction. A similar story has been written in the March 2018 quarter, with many of the underperforming outer suburbs lagging behind, whilst the upgrade market has seen growth in areas in close proximity to the CBD. A strong performance has been seen in the rental sphere and first home buyers have decided to bite the bullet and get active with a 5.7% increase in house sales sub-$500,000, perhaps due to the feeling that prices may start to increase soon. Unfortunately, as the market remained generally stable overall, mortgagee in possession activity continued to increase – sadly some property owners have not witnessed the change in market conditions they may have been relying on.

Recent statistics published by the REIWA reveal that Perth’s interim median house price has fallen by 1.9% to $510,000, however the actual median is expected to increase to $517,000 once all sales have settled. This would mean a decrease of only 0.6% from the December quarter, but an overall increase of 0.4% compared to the same time last year, proving some stability in the residential market. Units have followed a similar trend, falling 2.4% to $400,000, although this figure should be corrected after a settlement of open transactions. Vacant land has traded at a median of $276,000, representing a 3% quarterly increase and a 12.6% increase since March 2017, although this result may reflect a proportionate increase in vacant land transactions in more desirable locations, as our valuers continue to report that the volume of land sales in traditional first home buyer areas continues to stagnate.

REIWA’s data shows that in terms of sales volumes, the residential market has tanked in the last quarter. House sales fell by 4.7% to 5,336 and took an average of 67 days to sell – seven days more than the previous quarter. Sales of units declined 9.5% to 1,194 and took five more days to trade at an average of 83 selling days. Vacant land activity ceased, seeing a quarterly decline of 44%. There were 14,411 total residential listings in Perth at the end of the March quarter showing a small decrease of 2.9% from the same time in 2017 but a quarterly increase of 10% which could be represented by consumers looking to upgrade to more prestigious locations before prices increase.

As previously stated, Perth’s rental market tracked well over the March quarter. The median for both houses and units remained stable with an increase of $5 to $350 per week. Leasing activity rose 4.2% whilst the REIWA indicated that East Cannington, St James, North Fremantle, Ellenbrook, and Booragoon saw the biggest growth in leasing volume levels. As the deposit savings rate is currently at 1%, property continues to offer a more attractive return on investment than many other alternatives, with yields of 3.7% for houses and 4.2% for units. Rental listings are down by 18.6% compared to the same time last year which may be accredited to Perth’s increasing population growth. This bodes well for Perth’s house sales as a strong rental presence can be connected to an improving sales market. Migration figures indicate that 4,441 persons moved to Western Australia from overseas in the September 2017 quarter. This growth in net overseas migration has improved rental demand, although it is worth noting that during the same period, net interstate migration remained negative.

Looking more closely at some of Perth’s sub-market activity, the upgrader market in Perth was a strong performer over the past quarter with the western suburbs being a focal point. Floreat, Swanborne, Cottesloe, Claremont, Nedlands, Dalkeith, Mosman Park and Peppermint Grove are all areas where we are seeing good activity for aspiring residents wanting to get a foot into the prestige market. Further north, suburbs such as Trigg, North Beach and Watermans Bay are also seeing a similar effect. Subject to locational aspects, lot size and views, the prestige market starts at a price point in the low to mid $1 million range which represents raw land value or near land value with reasonable but generally dated improvements. At present, the market seems to be showing a strong preference for acquiring a site and building a residence to fit personal specifications rather than purchasing an established, near-new dwelling. For upgraders who can’t quite buy into the upper-end prestige market, suburbs such as Rossmoyne, Shelley, Salter Point and Waterford can present potential opportunities along the Canning River.

Older units in inner city locations are still experiencing very poor sales activity. Values for units built prior to 2013 have slumped significantly over the past couple of years. This is mainly due to an abundance of new apartments being released into the market, with shoppers opting to buy recently built stock rather than purchasing anything dated, whilst new unit complexes in sought after localities such as Claremont where supply is lacking are in good demand. Areas such as South Perth, Applecross and Mount Pleasant will see some activity generated in the apartment sector over the next few years with the release of numerous new developments. The continual release of new developments throughout the city and surrounds means that older apartment stock will continue to struggle, with a further negative impact on values likely over the next 12 months.

Further south, Mandurah is lacking confidence although showing some signs of improvement. Properties under the $500,000 price point are struggling with a large oversupply of listings creating downward pressure on property values. There have been positive signs within the area, however houses are still achieving lower prices compared to the same time in 2017. The upgrader market in Mandurah has been trading steadily. There have been a number of sales above $1 million for residents looking to trade up and some sales in excess of $2 million for properties within the Port Mandurah canal development. Overall, activity in Mandurah is likely to remain poor, with supply in the sub $500,000 market overshadowing demand and confidence in this area will likely remain low for several more quarters.

Mortgagee in possession activity has continued to increase throughout 2018. Our office has seen a two-fold increase in mortgagee activity in the March quarter compared to the March 2017 quarter. Lower priced, outer rim suburbs experiencing chronic oversupply tend to bear the brunt of this activity – Baldivis and Ellenbrook being at the top of the list. Areas such as Wellard, Stratton, Gosnells, Yanchep, Alkimos, Armadale and Port Kennedy are also suburbs we regularly visit for this purpose.

At an economic standpoint the general outlook across Perth is that we are improving. At a national level, consumer confidence has actually declined according to the Westpac-Melbourne Institute Consumer Sentiment Index. Their Red Book reports that the consumer sentiment index has receded 2.6% from 105.1 in January 2018 to 102.4 in April. The report outlines that “while the index remains positive overall, the mood has shifted from “cautiously” to “slightly optimistic”” and states that “increased financial market volatility and concerns about global trade tensions, declining house prices and the economic outlook have dampened expectations with views around family finances still a notable weak spot”. Yet the counter-cyclical nature of Melbourne and Sydney in relation to Perth’s property market may give Western Australian consumers a different perspective. With house prices remaining stable and (fingers crossed) being set to rise not fall, the attitude here in the west may persist to be slightly more positive than our eastern state counterparts.

In addition, consumer confidence in Perth is at a fouryear high according to the Chamber of Commerce and Industry WA’s survey for the March 2018 quarter, naming a stable political environment, subdued interest rates and minimal inflationary pressures for the positive outlook. This being said, consumers in Western Australia remain cautious about the slow growth of wages, high household debt and weak property market.

Part-time employment has soared according to a recent article in The West Australian, which stated that part-time workers accounted for 29% of the total workforce in 2014. That figure has now increased to more than 34%. According to 11 Recruitment, Western Australia may be seeing a trend in the right direction for employment. May 2018 saw a 22.8% increase in job ads compared to the same time last year. The engineering sector is worth keeping an eye on with a 61% increase in SEEK job ads from April 2017 to April 2018. Overall, the number of Western Australian job advertisements increased by 15% over the past year, whereas job advert views actually decreased by 4.4% creating a further divide between supply and demand which may, in turn, help with wage growth, lower unemployment and boost consumer confidence in the near future.

The state budget revealed an increase in taxes for foreign purchases of residential property to 7% (effective in 2019) which could impact on Chinese interest in Western Australia and hinder the ability to get development projects off the ground in the future, although with the current supply levels, this may be welcomed by some.

According to the Managing Director of InvestWest, Daniel McQuillan, Western Australia is set to become the world’s leading supplier of lithium. This will provide work beyond that of pure construction jobs for sites and refineries, creating sustained employment for the future. In addition, the federal budget has brought significant funding for Western Australia’s METRONET initiative, an expansion of Perth’s public train network, which will boost development activity around proposed transport nodes. This is likely to be a significant contributor to the performance of many residential suburbs.

In conclusion, Perth is still a bit of a mixed bag as we see lots of activity from first home buyers, rentals and the upgrader market, yet oversupplied outerrim suburbs are underperforming and we feel the divide between old stock versus new. The general consensus is that we will see slow but sustained growth over the next six months which will be welcomed by many.

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