Interstaters eyeing Perth's residential potential

Investors from outside Western Australia are sharpening their focus on Perth, with affordability, comparatively high rental yields and the potential for capital growth creating a surge in interstate enquiry.

Jennifer Wakeman, the general manager of property investment firm Momentum Wealth, said enquiry from outside WA was currently 108 per cent higher than at this time last year.

“The uptick in investor enquiry is being driven by the greater affordability of the Perth market amid rising cost concerns in the Sydney and Melbourne markets in particular,” Ms Wakeman said.

“Investors looking towards Perth are not only benefiting from more affordable entry into the market, they’re also getting more for their budget in terms of land value, property size and proximity to the CBD – all key drivers of capital and rental growth."

Rental yields in Perth are currently sitting at 4.4 per cent, well above the 2.4 per cent and 2.7 per cent available in Sydney and Melbourne, respectively.

Ms Wakeman said those yields combined with the relative affordability of Perth properties made the WA capital a compelling proposition for east coast investors.

Data from the Real Estate Institute of Australia recently named WA as the nation’s most affordable state, with just 26.5 per cent of an average family’s income needed to meet average mortgage repayments.

“There is no doubt the Perth property market is in a sweet spot for investors right now, given the opportunity to leverage both yield and growth as the market moves further into its upswing,” Ms Wakeman said.

“Investors looking towards Perth are not only benefiting from more affordable entry into the market, they’re also getting more for their budget in terms of land value, property size and proximity to the CBD – all key drivers of capital and rental growth.”

Ms Wakeman said low levels of listings and strengthening economic indicators pointed to the current growth phase to continue through the next few years, despite recent forecasts from CBA predicting a dip in home values to occur in 2023.

REIWA data showed listings for sale have almost halved from a peak of 16,969 in November 2015, with just 8,513 properties listed each week in October, on average.

“We’re continuing to see strong tailwinds for future growth in the form of low stock levels, sustained buyer demand, a large pipeline of mining activity and strengthening macro-economic drivers like rising household consumption, so we don’t anticipate this upswing to ease in the near future,” Ms Wakeman said.

“Perth remains the most affordable capital city of any state in the country when compared to income, so even if interest rates rise in 2022 or 2023, it will slow down the growth but won’t derail it.

“In the medium term, we do expect more stock to enter the market as we start to see the impact of dwelling completions, but this will largely impact the oversupplied outer suburbs where this stock is being developed.

“Those who have bought well, in established areas with limited development potential and hence less oncoming stock, will continue to benefit from a stronger long-term performance.” 

For investors, Ms Wakeman said the specific locations being targeted depended on their goals, with some buyers relocating for work or to be closer to family.

“These buyers are often targeting family-friendly suburbs, such as Wembley, Floreat and other premium western suburbs which offer proximity to the CBD and the cream of the best private and public schools,” she said.

“When it comes to investors, the majority will approach us with criteria in mind in terms of their budget, property type and desired investment play rather than a set suburb, and we’ll then tailor our search to suburbs and properties that align with their goals while also meeting our investment-grade criteria.

“We’ll generally be looking at established suburbs with strong owner-occupier demand and limited oncoming supply, as well as proximity to activity and employment centres which will continue supporting demand over the longer-term.

“Where investors in Sydney and Melbourne would usually have to look much further afield to find a property that offers strong land value within their budget, many are finding that they can target inner-city suburbs for the same budget in Perth, often in the housing rather than unit market where they will benefit from a higher land component.”

While WA remains a challenging prospect to enter for residents of Australia’s most populous states, Ms Wakeman said an eventual border reopening would likely result in another uplift in buyer demand, while for others, the closed border wasn't an impediment for investment.

“The current restrictions have limited cross-border movement so while interstate migration figures remain positive, we’re not seeing as many buyers relocating to Perth as we would anticipate,” she said.

“Also, some investors would prefer to come over to see the property in person, so that has deterred some from buying right now. We expect this to change when borders reopen next year and more companies look to recruit from interstate and overseas to address the current skills shortage, and investors can come over to WA to view the properties they may purchase.

“With affordability becoming an increasing barrier to investment in Sydney and Melbourne, we’re seeing more investors turning to alternative markets such as Perth and Brisbane, especially given recent speculation around rising interest rates and lending restrictions which will undoubtedly have a greater impact on these more expensive markets.” 

“A lot of buyers are recognising the impact open borders will have in terms of rising demand and property prices, and are looking to get into the market now to leverage affordability before prices rise further.”