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Are Perth properties undervalued?

Suburban homes/rooftops in Perth, Western Australia, photographed from a drone including the Perth City skyline. Perth, Australia.
8 min read
According to Daniel McQuillan, managing director of Nu Wealth, Perth house prices have been ‘massively undervalued’. Photo: Shutterstock

Are Perth properties undervalued?

It’s believed the current national imbalance is unsustainable and 2022 should see the Perth median house price gain traction as investors realise the city is undervalued.

According to Daniel McQuillan, managing director of Nu Wealth, Perth house prices have been ‘massively undervalued’ compared to the national average for Australian capital cities.

“The latest national figures produced by the Real Estate Institute of Australia reveal that the median house price in Perth at $520,000 was the lowest median capital city house price across Australia and 45.9% lower than the national average. 

“This is an historic anomaly that will be reversed beginning in 2022 based on the strong economic fundamentals in Western Australia over the coming years. 

WA has the lowest unemployment rate in Australia at just 3.8% and the strongest economy nationally, with Mr McQuillan suggesting an additional 51,500 jobs are expected to be created this financial year with unemployment expected to remain very low over the next four years fuelling the demand for workers and housing.

Almost ten years ago (Dec 2013) the Perth median house price was nearly the same as Melbourne. Now the median house prices have a $500 000 gap. The weighted average median house price for all Australian capital cities is sitting at $961 642. 

It’s believed the current national imbalance is unsustainable and 2022 should see the Perth median house price gain traction as investors realise the city is undervalued, with Nu Wealth believing Perth house prices should stay on an upward trajectory for ‘several years’.

“Based on the strength of Western Australian economy, the median house price in Perth should be at least on par with the weighted national average meaning the city has the capacity to gain an additional $400,000 in its median house price.  

“Property investors in areas such as Sydney and Melbourne are now selling their properties as they believe the market their offers more downside than upside and they will start to invest in undervalued markets such as Perth particularly after our borders open from 5 February 2022.  

With capital gains being the main game for investors, you want to invest in a suburb that delivers long term price growth, working with Real Estate Institute of WA (REIWA) we look at Perth’s top performing suburbs for value growth.

Perth's top 10 suburbs for capital growth

Suburb Median house price (Sept 2021) 1-year value growth 10-year value growth Days on market
Daglish $1,367,500 50.3% 56.4% 6
Highgate $1,008,000 58.7% 32.6% 51
Claremont $1,825,000 40.4% 39.3% 26
Bicton $1,255,000 41.4% 34.9% 14
Watermans Bay $1,220,000 41.9% 34.1% 18
Waterford $1,200,000 31.9% 43.3% 56
Cottesloe $2,550,000 32.1% 41.7% 17
Ascot $840,000 35.5% 20.9% 43
Salter Point $1,355,000 29.2% 39.3% 20
Trigg $1,507,500 31.1% 55.8% 20
Greater Perth average $520,000 +8.3% +9.5% 21

Source: REIWA, September 2021

Daglish – Sitting at the top as strongest performing suburb for long term performance and coming in second for growth over the 12 months to September 2021, the median house price is well over the Perth median price at over $1.3m with houses being sold in under a week once advertised.

Jennifer Wakeman, General Manager of Momentum Wealth says, “There are key drivers that explain Daglish’s outperformance.

“Located just 4 kilometres from the city centre, the neighbourhood has close proximity to the employment nodes of the CBD and Subiaco. This underpins demand from tenants (mainly young people and families), who are also looking to be near Kings Park and other attractions. This appeal is a key factor behind Daglish’s 10-year price growth of 56.4%.”

Highgate – one of Perth’s smallest if not the smallest suburbs, Highgate is less than 2km from the CBD and topped the year to November 2021 price gains of 58.7% but tends to lag on longer term growth, with median house price of $904 600,  prices rose 32.6% over the last 10 years.

Claremont – rounding out the Top 3, Claremont’s median price of $1.8million plus makes Claremont one of the most expensive suburbs in Perth, and as Ms Wakeman explains, “this premium location has provided investors and homeowners with 1-year price gains of 40.4% and 10-year capital growth of 39.3%.”

The top 10 suburbs for capital growth in WA are all high-end premium suburbs. They offer access to quality schools, large open green spaces and parks and plenty of employment options, with selling times on the market typically lower than the city wide average.

“This reflects the market recovery in Perth, which has been driven by owner-occupiers to date. Homeowners have seen their equity rise, and many are seizing opportunities to upgrade into blue ribbon suburbs,

“In addition, we’re seeing strong demand from returning expats seeking homes in premium suburbs with an appealing combination of lifestyle plus proximity to the Swan River and the ocean.” observes Ms Wakeman.

Properties in these suburbs tend to be few and far between and development sites are minimal with very few lots available for development. This scarcity coupled with strong demand inevitably increases values, and its this scarcity from an investment point of view in comparison to investing in an outer, more affordable suburb with housing supply in abundance that can limit future capital growth.

So are Perth’s prices undervalued?

While the top suburbs have been owner-occupier suburbs early indications show a return in investor activity across various price segments of the market, with ABS figures showing investor lending increased 87% in the 12 months to October 2021.

 “Given rising affordability pressures in the more expensive east coast markets, many interstate buyers are looking towards alternative locations for investment – as one of the cheapest capital cities to buy, and given the continued opportunity for both growth and yield, Perth stands out as a natural choice for many of these buyers.”

“The fundamentals behind Perth’s property market are all in great shape. The WA economy grew 4.3% in 2020-21 – the strongest of all states for the second year in a row. This growth is creating job opportunities, and WA now has the second highest rate of interstate migration nationally behind Queensland – and all these people need somewhere to live.” Said Ms Wakeman.

“2022 is shaping up to be a breakout year for the Perth property market and investors should act now and get in early before prices start to rise rapidly especially in undervalued suburbs of Perth, located in areas of traditionally high capital growth in the city such as close to the CBD, ocean and river,” Mr McQullian concluded.   

Perth’s rental growth

Some property investors seek capital growth. Others priortise regular income. So which suburbs best performed for strong rental growth?

Perth's top 10 performing suburbs for rental growth 2021

Suburb % Rent Growth - 12 months to Nov 2021^ Median Overall Rent* Median Days to Lease*
Waterford 48.75% $595 16
Kallaroo 39.51% $670 16.5
Beaconsfield 31.27% $550 19
Connolly 30.96% $635 14
Mount Hawthorn 29.18% $505 18
Inglewood 27.45% $415 22
Ocean Reef 25.74% $700 20.5
North Fremantle 25.59% $515 15
West Leederville 24.83% $455 14.5
Northbridge 24.01% $440 21
Greater Perth Average 14.19% $395 17

Sources: ^DSR Data. *REIWA, September 2021

Waterford – With a median overall rent of $595 weekly, Waterford had an almost 50% growth in rents for the 12 months to September 2021. According to Amanda Kroczek, team leader, Momentum Wealth, the suburb’s growth has been at the hand of increased demand from local university students with Waterford close to Curtin University, and from demand from families looking for green open spaces and the proximity to the Swan River.

“When you look at the statistics, Waterford hasn’t just outperformed for rent, it’s also come up trumps for capital growth,” says Amanda Kroczek, Team Leader Momentum property group.

 “This neighbourhood has seen values grow by 11.1% over the past 12 months – and by 44.6% over the last decade. Capital growth plus rental growth is an important combination in the property market.”

Kallaroo – coming in second place, Kallaroo has a weekly median rent of $670 and saw rents rise 39.5% in the last year.

“Kallaroo enjoys strong demand among tenants looking for proximity to the beach, and it offers the added appeal of nearby Whitfords City Shopping Centre. The suburb boasts good transport links to the city, it’s close to marinas, and within walking distance to shopping precincts – all factors which hold strong appeal with tenants.” Said Ms Kroczek.

Beaconsfield – South of the river towards Fremantle, Beaconsfield rounds out the top3 with a 31.27% increase, and has done well for capital growth. Ms Kroczek added, ““There’s a lot for investors to love about Beaconsfield - Proximity to the beach, Fremantle CBD and key education institutions like South Metro TAFE, make this a popular choice among tenants.”

Like the top performing suburbs for capital growth, the top suburbs for rental growth boast close proximity to employment hubs and educational institutes, are waterfront areas (River or Ocean) and have plenty of ‘green zones’.

However, the key takeaway – with the possible exception of Northbridge which still faces significant levels of oncoming stock and a smaller owner-occupier demographic, is that robust rent growth is coupled with strong capital growth.

Momentum Wealth’s General Manager, Jennifer Wakeman, explains, “This is a win-win for investors – robust rental performance may help properties in the top performing locations become positively geared over the longer term. This supports a positive cashflow and can assist with an investor’s reduction of debt.

“Yet these same neighbourhoods are also benefiting from impressive uplift in values. Rising rent plus healthy capital gains don’t always work in tandem. But it’s happening in these suburbs, and the uptick in values gives investors more opportunities to leverage increasing equity to build their property portfolios.”

It’s an important reminder to investors on the long-term benefits of the right suburb selection.

“It just shows that buyers who make an informed decision about where they invest can benefit from a stronger performance in all aspects – combined, these factors set investors well-ahead when it comes to expanding their portfolio sooner, and ultimately achieving greater long-term wealth.”

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