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The month in review: Perth
By Herron Todd White
The Perth residential property market continues to experience gross variances in demand levels dependent on location, product type and price point.
Prestige areas continue to experience a heightened level of demand up to the $2 million mark in comparison to 12 months ago. Sought-after products include improved properties reflecting land value, but with some rental income potential in the short term, and very well-presented properties in traditional upgrade locations. Activity above $4 million remains thin and price sensitive.
Inner and near-city locations are experiencing varied demand, with very well-presented properties with good features experiencing solid demand while second rate properties are struggling to attract interest.
Properties with development potential are beginning to attract speculators, but at levels well below previous transaction prices in many instances.
Outer suburbs are facing a multitude of issues, including near-new properties selling below current cost price, leading to valuation issues for new builds, declining rental conditions leaving landlords under pressure, and chronic rebates in the land industry creating a lack of transparency about pricing, which can have a larger negative effect in the long run. First home buyers are being bombarded with creative marketing and financing options, enticing them to build rather than buy an established dwelling, which may not lead to the best result in the long term. Of concern is that within an already subdued, affordable market, many such marketing plans also appear to be attempting to assist buyers who cannot afford to enter the market in traditional ways, and caution needs to be applied.
The above variances in activity can be related back to Western Australia’s struggles over the past two years to adjust to the new world order, or the new normal. Positive net migration, wage pressure, rapidly expanding urban areas, and significant pressure placed on existing infrastructure has eased and in most instances, reversed. The fly-in, fly-out trend appears to have peaked and for the time being is declining, as are wages and job security within the resource and associated support industries. As such, there is a portion of the population that finds themselves in a delicate financial situation with prior purchases often unsustainable and assets unable to be retained.
In saying that, there is an equivalent or larger portion of the population that has simply been doing the proverbial head down, paying off debt, increasing savings, etc., and are in a position to upgrade into desired locations. If they also have significant job security, they can really stretch and attain entry into areas they never thought they would be able to achieve – and that is driving a lot of the current demand.
What we need to see next is stability at the lower and middle sectors, to facilitate first home buyers entering the market using genuine means, not incentives, handouts, or blatant cash payments, which will then create a genuine upgrade market for buyers looking to upgrade out of similar areas.
We also need to see an end to companies reducing the number of employees on their books, only to have them replaced by contractors through a third party, which simply hinders their ability to obtain finance.
Of more importance, though, is the need for political courage to stimulate large scale, necessary infrastructure works. Nothing stimulates a subdued economy like a government with grand ideas and the guts to follow through with them. While we have had significant infrastructure projects over the past ten years, many of these were simply to cater for a rapidly expanding population and conflicted with higher wage cost pressures resulting from an already occupied workforce. Now is the time to take advantage of more competitive employment costs and continue to build the infrastructure the metropolitan area requires.
We also need to see government bureaucracy at all levels supporting employers in every size and function, rather than finding ways to hinder them. Payroll tax remains an antiquated penalty for maintaining employment levels in subdued economic environments. Government projects that interfere with small business operations require compensation to be factored into project costings. Local governments need to stop penalising successful businesses facing parking challenges, or those businesses wanting to innovate and try something that doesn’t fit into a check list.
Most important, though, is that the market needs to see that the cup is actually half full. The reality is, if you do have job security, there has not been a more affordable time to buy property in Perth in over a decade, and interest rates remain far lower than at that point in time.
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.