Property Market Update – February 2017

The Perth residential property market continues to buck the national trend with property values stagnating after declining over the past couple of years.

According to the latest Real Estate Institute of WA (REIWA) figures, the median house price is $520,000 which remains unchanged compared with the previous quarter and is down 3.7% for the year.
This is compared with the east coast where Sydney and Melbourne markets continues to show strong growth, particularly in the established housing market.

The latest Statement on Monetary Policy released by the Reserve Bank of Australia (RBA) in February reflects on this two-speed property market, stating that dwelling investment in Australia has supported growth in output and employment in recent years as we adjust to a decline in mining investment.

This support has primarily come from the east coast as the RBA is careful to point out that in Perth, values continue to decline and demand for property wanes.

The RBA also specifically outlines concerns at a national level regarding the apartment market, with an increase in supply over previous years weighing on rents and pushing down prices.
In Perth vacancy rates continue to rise and the current oversupply of apartments on the market is starting to have a broader impact on apartment values.

The RBA says that the increase in supply in apartments can be partly attributed to a national shift toward higher density living and the desire to live closer to inner city areas and other activity hubs.

In fact, nearly half of all building approvals in the past 12 months in Australia have been for high density building.

This increase in supply has had a real impact on values, which is reflected by REIWA figures that show the median unit price is down a further 4.7% for the quarter in Perth and down 6% for the year to $410,000.

One positive to emerge from the general decline in property values in Perth is that affordability has improved.

A recent CoreLogic RP Data report into housing affordability across Australia, pinpointed the Perth market’s affordability having improved significantly due to the dip in values.

The report showed that the dwelling price to income ratio in Perth is 5.5 compared with 6.0 five years ago. It also highlights the percentage of household income required for a 20% home loan deposit is 111%, compared with 120% five years previous.

Perhaps the most dramatic figure is the percentage of annual household income required to service an 80% LVR mortgage, which is now 29.4% compared with 40.7% five years ago.

While this improved affordability is good news for those looking to purchase property in the current market, it may not be so for investors or those looking to sell property. CoreLogic also recently published their Pain and Gain report that shows the proportion of dwellings reselling at a loss across Perth increased in the September 2016 quarter.

According to the report, 17.3% of houses and 32.4% of units resold for less than their previous purchase price during the quarter.
What is interesting to note is the amount of time that property is held, with more properties selling at a loss if they are held for less than five years while properties held for seven to ten years are more likely to sell at a profit.

Looking at specific areas, the City of Perth recorded the highest percentage of sales at a loss with 48.1% while Mosman Park and the Shire of Murray also recorded a higher amount of losses with 35.3% and 34.1% respectively.

The losses in Perth can be attributed to the high level of apartments in the area, particularly as there has been an influx of new stock to the market in recent years that is likely to have pushed down prices as supply outstrips demand.

East Fremantle recorded the least sales at a loss with just 8.3%. Canning and Serpentine Jarrahdale also fared well, recording 11.7% and 12.3% losses.

These areas had a high proportion of homes held for seven years or more which is likely to have influenced the profit outcome.

Considering that most sales are made at a profit when property is held for at least seven to ten years, it is useful to look at dwelling value growth over a ten-year period in certain areas to pin point where there may be long term investment potential.

REIWA data shows that areas including Burns Beach (5.4% growth), Boya (4.9%) and Willeton, Jarrahdale and Daglish (all 4.8% growth) all recorded the highest levels of growth in values for the last decade. Woodbridge (4.6%) and Riverton (4.5%) also performed well.

Overall, Perth and Western Australia remain a buyer’s market for those in a financial position to enter or invest in the current property market.

These figures provide a useful road map for where to look for growth areas and show that if you can purchase with a view to holding property for several years you may be more successful in making a profit than if you aim to buy and sell quickly.

In Perth, areas to watch in the future include those that are well serviced by public transport, locations within proximity to the city are also still in high demand, particularly areas that have larger blocks available with subdivision potential.