Planning changes present development opportunities in Perth
In recent years there has been a dramatic change to Perth’s planning policies, unlocking the scope for investors to capitalise on infill development opportunities, writes Anna Porter in her first monthly column for API Magazine.
After many years of failing to keep up with their east coast counterparts, property investors are now turning their sights to Perth in the hope of cashing in on recent planning changes.
In an ever-changing market, it can be daunting for investors to consider a small development but with the policy changes taking full effect, the opportunity carries lucrative rewards that outweigh much of the risk.
Savvy investors are increasingly turning to Perth to secure a site that could immediately or later be developed, subdivided, sold with subdivision plans or land banked.
Perth’s rental market is booming, with landlords enjoying 15 per cent year-on-year growth of rental returns, according to SQM Research. This makes for an attractive holding rent while getting a Development Application (DA) in order.
Unlocking the ‘Missing Middle’ property types
As the dream of home ownership becomes more distant for more people due to cost-of-living pressures, the rising cost of housing and increasing rental prices, more people than before are looking to the ‘missing middle’ housing types for living arrangements.
Over recent years, there has been a dramatic change to Perth’s planning policies, unlocking the ‘missing middle’ of developments. These are medium density sites that allow for two to six villas, townhouses and duplex style properties that appeal to not only Australia’s ageing population, but the many downsizers priced out of larger homes that are bearing the brunt of rising interest rates.
Diversified property types and housing choice is both critical and imminent for Perth. It not only appeals to different lifestyles, whether it be students, young families, or retirees, but will help accommodate the population of 2.68 million that is growing steadily.
Western Australia’s infill plans and targets were set by the Directions 2031, which addresses urban growth and focuses on existing areas that can handle density increases to accommodate Perth’s infill requirements.
On the back of this, the State Government also engaged local councils to update their policies and Residential Design Codes were reviewed in a bid to increase the number of residences in the market.
Development potential in WA post-pandemic
In the wake of COVID-19, the state border shutdown cushioned Perth from the extreme price rises seen across most of Australia. During these shutdowns, the WA capital avoided a lot of attention from developers and did not experience buoyant market conditions like the rest of the country.
Pricing remained subdued for 2020 and 2021, which has opened the market for smaller builders and developers to snap up reasonably priced sites with more potential was likely a few years ago.
Fast forward out of pandemic restrictions and despite the current interest rate trajectory, the Perth market is powering along as restrictions have subsided and investors find themselves priced out of other markets across the country.
Development sites and the comparatively low prices they are carrying possibly won’t last long, with smaller development sites in metro areas typically ranging from $600,000 to $800,000.
Perth real estate affordable but set to rise
Perth remains one of the most affordable cities in Australia to buy property, with figures from CoreLogic showing the median house price in Perth in February 2023 was $561,700, less than the median price of a unit in Melbourne ($585,000).
CoreLogic data also reports Perth suffered the smallest decline across the country for the last quarter with a dip of 0.2 per cent in comparison to Hobart’s fall of 4.9 per cent, Brisbane’s drop of 3.2 per cent and Melbourne’s 2.4 per cent quarterly decline.
According to data release by REIWA on Friday (17 March), in WA the proportion of median family income needed to make loan repayments rose 2.3 percentage points to 33.8 per cent in the December 2022 quarter. This is up from 31.5 per cent in the September quarter and 25.3 per cent in the December 2021 quarter.
While it represents a decline in affordability, only the Northern Territory was more affordable, with home owners there needing 32.2 per cent of their income to meet loan repayments.
Perth’s relative affordability will likely prove tempting to many Sydneysiders trying to claw their way onto or up the property ladder.
In New South Wales mortgage holders required a massive 54.8 per cent of their median weekly income to meet their mortgage commitments.
Perth is also in the early stages of a construction boom, with many private and public sector projects breaking ground. The $1.5 billion Perth City Deal and $385 million Elizabeth Quay Projects will boost the Perth CBD and further project the capital’s appeal to interstate and international migrants alike.
These projects coincide with a range of other notable projects for the state, such as the Perth Airport Upgrade, Edith Cowan University City Campus and Kings Square Fremantle.
According to new data, Western Australia’s population grew by a strong 1.8 per cent in the year to September 2022, helped by an unusually large increase in overseas migration into the state.
While the focus is firmly on Perth, for many investors who want to cash in on development sites, it is important to still undergo due diligence to ensure the site in question meets development expectations and has genuine perform to outperform wider market trends.