Perth market undergoing a post-Budget reality check

If you’re an avid consumer of property news, you’ll have seen a lot of headlines suggesting the market is imploding.

There has been story after story about properties failing to sell under the hammer on the east coast. One Western Australian publication recently referred to declining clearance rates in WA, citing they’d dropped to 23 per cent. The following week the clearance rate was 40 per cent (based on two out of five reported auctions).

WA conducts very few auctions and clearance rates are not remotely relevant to market performance.

While it is interesting to review a variety of property news, when you are serious about buying or selling, the above example highlights the need to get your information from those active in the relevant market.

REIWA is the peak body for the real estate profession in WA. We represent more than 90 per cent of active real estate agencies in the state. We have access to data and insights not always available to other commentators.

So, what are we seeing right now?

The Perth market has definitely changed. It was softening prior to the Federal Budget but there have been more changes since then.

In the lead up to the Budget, there was a lot of speculation and concern about the potential changes to taxation policy.

We saw an increased number of investors looking to sell or seeking an appraisal to evaluate their position, however, with negative gearing grandfathered for existing properties, and the 50 per cent capital gains tax discount remaining for gains made before 1 July 2027, the expected exodus of investors did not occur and many investors have now adopted a wait-and-see approach to the market.

Unfortunately, these changes, along with three interest rate rises, have impacted investor sentiment and we have seen a decline in investor purchasing activity in Perth’s established homes market post-Budget.

If you are thinking of selling your investment

If you are still considering selling, you will need to be aware of the changes in market conditions.

Members tell us that well-positioned homes are receiving strong interest and good offers. Well-positioned can mean anything from being away from a main road, closer to a lifestyle hub, or on the ‘better’ side of a dividing road.

As listings have increased in the past two months, buyers now have more choice and properties they consider to be less ideally positioned are attracting less interest.

Presentation has also become more necessary than it was during the frenzied conditions seen earlier this year. Buyers are more selective and properties that need work are less appealing.

You will need to revise your expectations and price your property for today’s market, not what you might have received three months ago.

To quote one of our members, ‘the days of one-and-done are gone’. You should not expect your home to sell at the first home open. Your property is likely to take several weeks to sell, or longer, depending on your area and the level of buyer interest.

It is fair to say you can expect fewer offers. In some cases, the first offer you get may be the best. Be guided by your agent as to whether it’s a reasonable offer based on market conditions in your area and buyer feedback about your property.

This advice applies to anyone selling a property. Investors need to be aware of another challenge. It is becoming harder to sell a property with a fixed-term lease in place.

Firstly, as investor activity has declined, it is difficult to find an investor purchaser. Secondly, if there are quite a few months left on the lease, owner-occupier purchasers are reluctant to take on a lease and also do not want to wait months for a lease to end before they can move in.

If you are thinking of buying an established property

Broadly speaking, as there are more homes on the market now than there were a few months ago, you have more choice and can take more time with your purchasing decisions.

While investor activity has declined, in my experience so has first home buyer activity. This means overall competition for properties has decreased.

There are some positively or neutrally geared investment opportunities out there, but they are harder to find in Perth. You may want to look at the regions.

You may also want to speak to a financial professional about how best to structure your investing.

While residential property held inside a self-managed super fund (SMSF) has been excluded from the taxation changes, to prevent investors from using this ‘loophole’ in the future, it has been announced Australians will no longer be able to borrow through their SMSFs to purchase residential property.

Superannuation funds will still be able to contribute equity to the acquisition of property, with borrowing held in an investor’s personal name.

If you are investing speculatively with the hope of a huge capital gain in the short term, be advised that price growth is currently slowing in Perth.

From a weekly income point of view, Perth’s rental market remains constrained. The overall vacancy rate is hovering around 2 per cent and rent prices are continuing to increase but conditions vary across Perth.