Perth Residential Property Review — Spring 2015: Down But Not Out

Perth, Australia’s fourth largest city, is a boomtown bubbling with verve and hyperactivity. Apartments, hangouts, restaurants, shops, business establishments, educational institutes and places of entertainment combine with an efficient transportation system, sports facilities, green spaces, outstanding views and a multicultural ethos to create a magical sense of energy and vivacity.

Perth in Western Australia is truly a terrific destination for business owners, office workers, students, home makers and every other demographic you can think of.

In a place like this, any investment in Perth property cannot go wrong.

Right?

Well, actually no – that’s not factually and entirely correct. What should be a buzzing and throbbing property market is down and out these days. However, before we pronounce judgment, let’s check out the demographics, the reasons for the slump and some cold, hard statistics.

Demographics

According to Mosaic Demographic Data, a property of Experian Australia [1], Independent youth make up 42.3% of the population while matured & established independent people and older independent folks combine to account for 32.2% of the population. The statistics imply that the demand for rental and property investment/purchase should be on a roll.

So, do these numbers make for music to the collective ears of construction companies, investors, lessors, home buyers, and other property types?

Well, the answer is no – at least not at this moment.

Numbers that Depress [2]

The Real Estate Institute of Western Australia (REIWA) has this to report for the week ended 4 August, 2015 [2]:

  • A total of 13,575 properties (land, units, houses) were listed for sale.
  • Of these, 627 properties were sold – a mere 4.6%, indicating an extremely subdued market.
  • A total of 8,335 properties (units, houses) were listed for rent and only 1,387 ( 16.6%) got taken.
  • North of the River suburbs that topped the sales charts were Butler, East Perth, Dianella and Aveley.
  • Top selling south of the River suburbs were Rivervale, Canning Vale, Forrestfield and Gosnells.
  • The median house price fell to $530,000 in June 2015 (from $550,000 in March 2015) and the average selling days increased to 71 (from 68 in March 2015) – a double whammy.
  • Median house and unit rents dropped to $430 and $400, respectively, reflecting a drop of $20 in each category from March 2015 to June 2015.

What is really depressing is that the prices are hovering around their 2007 levels [3]. There was a boom in 2006, followed by the financial markets collapse in 2008.

In 2009, the government injected a stimulus, and the markets started limping, but that did not help.

Reasons Why The Perth Real Estate Market Is Down

Perth has always relied on the mining sector – just one single sector. It did great when the world was experiencing a boom, but when mining and resources sectors slowed after the 2008 financial collapse, the Perth property market became all unhinged.

Reduced mining activity killed new job creation and job migration dropped because the number of mining jobs plunged, considerably weakening the rental market.

Many home builders already had entered the market and they had to finish what they started despite the bust. This added to the oversupply of houses and units.

Consumer spending crashed after the 2008 bust. After property prices nosedived, investors moved their resources to liquid and other assets. Consumer confidence took a hit and all these factors combined to deliver a massive blow to the property market.

That said, bad times do not last forever.

Is This A Good Time To Buy Property in Perth?

Perth’s mining boom is done with, consumers are spending less these days, supply of property hugely outstrips demand, prices are extremely soft, etc. It’s truly a wretched time to sell your home or lease it out.

But I’m sure you already know that every dark cloud has a silver lining. And, what you have read above was the bad news. Here comes the good bit.

According to a report by BIS Sharpnel [4], Perth property prices are expected to stabilize by the financial year 2017-18. The same report goes on to say that there are almost no downside risks and that the Perth property market represents a classic case of confidence being below fundamentals.

Consider the following facts:

• A recent survey by Master Builders and Y Research states that out of the 93 suburbs within 5—15 kms of the Central Business District, 44 had no apartment supply and only 10 had more than 500 apartments. Plus, there were just 69 apartment buildings that were taller than four storeys. [5]

• Houses are selling faster at auctions than by traditional means [6]. According to REIWA, it takes just 37 days to sell a home at an auction compared to the 64 days it takes to sell a home the traditional way [7].

• The bullish news is that there are homes that are priced below replacement cost, which is the cost of building a new, similar home. This is a classical sign that the market is bottoming out.

Bankwest’s chief economist, Alan Langford, recently said that West Australians should avoid “scaring themselves into a recession.” [8]

Now let’s put two and two together – Home prices are very soft, few people are building new homes and experts reckon that there is limited downside risk to property prices and that the prices will stabilize by the financial year 2017-18.

This tells us that the prices are at realistic levels now and there are 12 months to go for the softened up prices to consolidate (after maybe softening a wee bit more). The downside risks too are limited.

If you ask me, this could be the right time to enter the Perth residential property market before prices start moving north.