Rents, Roads And River: Perth Property Returns To Positive Territory
Perth property investors breathed a collective sigh of relief when the release of November’s property data revealed a rare uptick in house prices.
Over the past decade, Perth values have gone from the most expensive in the country to the cheapest. Since the peak of the mining boom four or five years ago, house prices have steadily deteriorated as population levels fell and workers left the state.
The 0.4% house price increase, while modest, offers a glimmer of hope that house prices might be stabilising or correcting.
The increase also has the potential to spark a shift in market sentiment, prompting first-home buyers who had been watching the declines to perhaps come in from the sidelines and escape the rental cycle.
Compounding the situation for the long absent first-home buyer is a tightening of the rental market. Median rents are at $350 per week across Perth, representing 18 months of stability, but with vacancy rates at 2.6% it is widely expected rents will rise.
Hayden Groves Deputy President of the Real Estate Institute of Australia (REIA) said the rental market in the inner city also offered better returns than other capital cities, along with investment opportunities elsewhere in the city.
“There remain some good opportunities for property acquisition in Perth’s fringe suburbs due to an oversupply of housing construction earlier this decade,” Mr. Groves said.
“There remains a steady flow of mortgagee sales in these areas offering good yields from an improving rental market.
“Apartment stock close to the city centre also offers good opportunities for yields around six per cent in suburbs close to or in the CBD; far better returns than the Melbourne or Sydney markets.”
James Nihill, Managing Director of Patrick Leo also pointed to the rental market as a key variable that hinted at a healthier property market emerging in the Western Australian capital.
“The median house weekly rent rose $5 to $370 per week during November, and the top performing suburbs by median weekly rent were Eglinton and Clarkson on the northern train route, Wannanup in the far south and popular southern suburb Willetton, which all saw increases of $10 per week,” Mr. Nihill said.
The premium areas of Perth have been more resilient than the outer suburbs, which were weighed down by large land subdivisions coming to market and have borne the brunt of the price falls.
Catching the falling knife
The November growth improvement, the first since 2017, was an indication that Perth has reached the bottom of its property cycle and was on its way to recovery, according to James Nihill, Managing Director of Patrick Leo.
“It’s a good time for investors to get into the market,” he said.
According to CoreLogic data, Perth’s median price has stabilised at $437,080, compared to $435,119 in October. The suburb to see the largest increase in value was affluent Floreat with a 3.1 per cent increase to $1.34 million. This was closely followed by nearby Wembley, as well as Willetton, Clarkson and former market garden area and now suburban southern area Spearwood.
“With almost five years of falling house prices in Perth, it’s evident the tides are finally turning, and Perth is presenting compelling growth opportunities in Australia for property investors,” Mr. Nihill said.
“Lower house and unit prices have boosted affordability in Perth, while an increasing population and record low interest rates have created the perfect storm for buyers,” he said.
Cranes and councils
Major infrastructure developments around Perth were also driving shifts within the property market. The city is undergoing a massive transformation, with billions of dollars having been invested in significant projects.
Inner city apartments and nearby housing markets have been buoyed by the ongoing development of Elizabeth Quay on the Swan River and Yagan Square, linking the CBD to the nightlife district of Northbridge. Nearby, WA has embarked on one of the most significant museum redevelopments in the world at this time.
To the east, complementing the new Perth Stadium, the Riverside project will transform the eastern gateway to the city. The project includes a mix of residential, commercial and public spaces that capitalise on the unique river-front setting to create a cosmopolitan waterfront community and tourist destination.
With 72 kilometres of new passenger rail and up to 18 new stations, Metronet is a catalyst to transform more than 5,000 hectares of land around new stations into desirable places for investment in housing, jobs and services.
Jay Sidhu, Director of Vision Surveys Consulting, said in the medium term the Metronet transport project will generate areas of new opportunities for development focused around the network, such as in Bayswater and Forrestfield to the north of the airport.
Mr. Sidhu also said some affluent western suburb local councils had been opening up development opportunities.
“Recent Local Planning Scheme reviews by particular councils have presented opportunities for subdivision and development in areas previously restricted to single dwellings,” he said.
“Councils such as the City of Nedlands and Town of Mosman Park now allow townhouse developments and apartment developments in certain locations.”
There were other factors to consider though, before embarking on an investment purchase.
“This year has seen councils across Perth address the issue of balancing infill development in established suburbs with protection and retention of the existing tree canopy, which has led to a number of councils adopting verge tree and tree retention policies that can have an impact on the development yield and potential of properties,” he said.
His company had seen a steady increase in planning applications for new subdivisions since the middle of the year, “with more of our clients optimistic about the market in 2020.”
“In particular, subdivisions in the western suburbs and high-end apartment developments are gaining a lot of interest.”