Perth property market standing alone as 2023 growth prospect
While the rest of the country stares down the barrel of large property price falls, Perth is tipped to buck the trend and increase in value in 2023.
A decline in housing stock is contributing to the Perth property market’s ability to weather the real estate value declines prevalent throughout much of the rest of Australia.
The West Australian capital is growing in stature as an investment target for eastern states buyers drawn to low vacancy rates, rising rents and the city’s relative housing affordability.
While rising interest rates are eliciting forecasts of property price falls of anywhere from 10 to 20 per cent for the national market, Perth is being tipped to buck the trend with a small but significant degree of growth.
Cath Hart, CEO of the Real Estate Institute of Western Australia (REIWA), said history showed WA’s property market is often out of cycle with the east coast.
“Some price adjustments may occur in coming months, but we are maintaining our expectation of low to moderate growth over the course of the whole year in the range of 2-5 per cent,” Ms Hart said.
“WA will not be immune to the effect of more rate rises, but rapidly rising interest rates are not the only factors that impact a market, for example, WA property prices rose between 2009 and 2010 during a period of rate increases.
“In terms of market activity, we expect that we’ll be likely to see some hesitancy in the short term as people wait and see.
“WA prices are currently being supported by ongoing demand and a shortage of housing across the board and this is likely to continue.
“WA has a strong economy, low unemployment, population growth and affordable housing and this will continue to support the market in the longer term,” Ms Hart said.
Perth Property Partners’ Director, Rob Walker, said there were now 6,993 properties for sale in Perth, compared to the corresponding week last year when there were 7,975 properties for sale.
“This clearly shows a decline in housing stock, which I believe will continue to put pressure on house prices.
“For this reason, I would expect Perth to continue to show growth over the coming 12 months as evidenced by this low level of stock and continued strong demand from interstate and local buyers.”
High rent yields attracting investors
The affordability of the Perth market, combined with strong rental yields, is now making it very attractive to the investor market in particular.
According to the Australian Bureau of Statistics (ABS), the average mortgage size in Perth is only around $478,000 compared to Sydney at $752,000, so there is much less impact household budgets when interest rates move upwards.
Asking rents in Perth have soared, with the average weekly rental for a house jumping 15.2 per cent to $530 in the final quarter of 2022, the largest annual increase of all the capital cities
Daniel Brennan, Director, DV Buyers Agency, said interstate interest in the Perth market was ratcheting up.
“We are now receiving a lot of enquiries and interest from investors over east simply because of the affordability and value of the Perth market,” he said.
“Low median prices ($560,000 as of December), record low vacancy rates (0.6 per cent), strong median rental yields (5.1 per cent) and increasing migration, are all key reasons that investor activity is increasing.
He said houses were outperforming units, while high rent yields were a lure for investors.
“The affordability of the Perth market, combined with strong rental yields is now making it very attractive to the investor market in particular. You can find houses on decent sized blocks for under $500,000 in many locations, which explains why the housing market continues to outperform the unit market in most instances.
Mr Brennan singled out the southern coastal suburb of Rockingham as one local government area that continues to do well, with median house prices growing 8 per cent over the past 12 months and units growing 7.4 per cent.
Perth-based buyer’s agent Peter Gavalas, from Resolve Property Solutions, said that while a strong uptick in international migration should benefit the WA economy, the capital, which already has a tight rental market, desperately needs more accommodation to house everyone.
“The city’s rental stock is at a historical low, with more than 18,000 properties removed from the rental pool since January 2021, according to the Real Estate Institute of Western Australia,” he said.
“Many investors have sold off in recent years to cash in on the capital gains, however, these rental properties aren’t being replaced, with recent ABS data showing investor lending has fallen off a cliff.
“As a result, Perth is massively undersupplied for rentals, with the city recording a 35.3 per cent annual drop in the number of available properties in January.”
James Limnios, Managing Director of the Limnios Property Group, said he has never seen such a price differential between existing and brand-new apartments within the last 10 years around the Perth CBD as currently exists.
“Massive increases in construction costs over the past couple of years has meant that new apartment prices have to be set at a price well above apartments constructed within the last five to ten years.
“For example, a newly constructed two-bedroom apartment would need to sell for at least $650000 if not more because of rising construction costs whereas near new established apartments in the central Perth area can now be purchased from $450,000.
“Because of rising interest rates combined with labour and material costs, many new apartment developments in the city and fringe city area are no longer commercially viable. The numbers simply don’t work, unless prices for new apartments rise significantly.”
“This has led to a death in supply of apartment developments that is now resulting in surging rental prices.
Top six Perth suburbs for price growth
CoreLogic’s Perth home value index decreased marginally in January, down 0.3 per cent from December and down just 0.1 per cent since October.
All capital cities recorded declines, with Brisbane and Hobart seeing the largest falls over the month and past three months.
According to REIWA, the top performing suburbs for house price growth in January were Fremantle (up 2.1 per cent to $1,062,000), East Victoria Park (up 2.1 per cent to $740,000), Yangebup (up 2.0 per cent to $540,000), Ballajura (up 1.7 per cent to $500,000), Mount Lawley (up 1.5 per cent to $1,217,500) and Success (up 1.5 per cent to $593,500).
There were 7,104 properties for sale on reiwa.com at the end of January. This is up from the 12-year low of 6,931 reported last month, but 10 per cent lower than levels seen a year ago.
Ms Hart said the number of new properties coming onto the market was of concern.
“We saw the number of new listings decline 13 per cent in the second half of 2022 and new listings in January are down 24 per cent from a year ago,” she said.
“This is what we would expect following the interest rate rises as people become more cautious and wait to see what happens.
“It has helped keep values stable as it has limited supply relative to demand.
“However, if new listings remain low, we’ll see the number of properties for sale continue to decline and the housing shortage worsen.
“And while we were expecting some relief as building completions increased later this year, HIA data showed new home sales in the last quarter of 2022 were 30.9 per cent lower than at the same time in 2022, suggesting the supply of new housing will decline.
“This will further exacerbate the housing shortage.”
Perth properties took a median 27 days to sell in January, according to reiwa.com data. This was nine days slower than December and six days slower than a year ago.