Property Market Update – September 2016

Property experts and commentators have been discussing the weakening Perth property market for a couple of years now, with sales numbers and values gradually declining across the residential market as the economic downturn in WA continues to take its toll.

Looking at the figures in depth, we can see a definite split between how the housing and unit markets are faring in Perth, with units taking the brunt of the decrease in values as the volume of stock on the market increases significantly.

According to the Real Estate Institute of Western Australia (REIWA) June 2016 quarter figures, while the median price of houses plateaued in the last two quarters at $530,000 (compared with $549,000 in the June 2015 quarter), units plummeted to $406,000 compared with $430,000 at the same time last year.

Further evidence that units have been affected by the downturn more than houses, the latest Pain & Gain report by CoreLogic RP Data shows that while 17.9% of houses sold for less than their previous purchase price in Perth in the June 2016 quarter, a whopping 30.2% of units sold for under their previous purchase price. This is the highest recorded losses for houses in Perth since September 1996 and the highest level of losses ever recorded for units.

Looking at investor figures, 23.1% of investor sales were at a loss for the quarter, which is higher than for owner occupiers (18.8%). Core Logic puts this down to the likelihood that more investors own units.

Moving forward, the amount of unit stock on the market does not bode well for unit values in the short term as the number of apartments on the market in particular is still very high. However, annual dwelling approvals reflect a slowdown in unit production with unit approvals down 18.6% year to date.

The decline in the number of units coming to market along with long term demand for more compact living options will likely see a recovery for the unit market in the next couple of years. For those that can hold on, apartments and other low maintenance, smaller living options are likely to increase in popularity in the future as more people seek homes close to activity centres and transport.

Turning now to the current state of the new land market, we can see that buyer’s appetite for new land has also continued to drop significantly.

According to the latest figures from the Urban Development Institute of Australia (UDIA WA) the number of lots sold in the June 2016 quarter was down 22% and the number on the market is up 20%. The average price of lots sold is down 3.9% to $237,373 and construction activity is following suit, with lots predicted for completion in the coming twelve months down 31% in the June 2016 quarter.

While property sales activity is certainly declining across the board, there are pockets of activity and locations that remain attractive to buyers.
In terms of the land market, growth areas Wanneroo, Swan and Armadale continue to record strong levels of sales activity. These areas continue to attract buyers due to the high level of amenity within the large new developments located in these areas including employment options, retail, services and community facilities as well as public transport connectivity, particularly in Wanneroo and Armadale which are serviced by the train.

According to REIWA, the highest growth established suburbs include the western coastal suburb of Swanbourne with an average price of $1.7M (17% annual growth), Kallarroo has experienced 17% annual growth in the north with median price of $772,500 and the inner eastern suburb of Lathlain has experienced 10.4% growth to $855,000.

The growth in these established areas can be attributed to some extent to upgraders who are making the most of the more affordable prices and accommodative interest rates that are allowing them to make the move.

First home buyers (FHBs) have dropped off even further this year now that the first home owners grant for established homes was cut in October 2015.

In the year to August 2016 there were 11,060 sales using the FHBs grant compared with 19,103 in the year to August 2015. That is nearly half the number of FHBs in the market from one year to the next.

In terms of where FHBs are choosing to purchase, Baldivis continues to top the list of locations and has done for six years running. Aveley and Wellard round out the top three suburbs and the median price paid for FHBs homes in Perth is $532,500.

Overall, the weakening of the Perth residential property market is likely to continue in the short term as population growth declines and economic growth is muted.

In the medium to longer term, a recovery in the property market is likely as the economy finds its feet and buyer confidence returns. In the meantime, Perth prices are at more affordable levels and for those with a steady income that can ride out the short term dip in values, this could be a great time to make an investment in property with longer term returns in mind.