Supply, affordability cause for optimism in WA, SA

Established housing markets in Adelaide and Perth seem well-poised to rebound from the current economic uncertainty, with both cities showing resilience in the early stages of COVID-19 shutdown.

Supply, affordability cause for optimism in WA, SA
Adelaide's established housing market has been stable for an extended period. Photo: Shutterstock (Image source:

Established housing markets in Adelaide and Perth seem well-poised to rebound from the current economic uncertainty, with both cities showing resilience in the early stages of COVID-19 shutdowns.

Median house price data for the March quarter released by the Real Estate Institute of South Australia showed solid growth compared to the same period last year.

More than 3,800 homes settled in Adelaide over the quarter, 400 more than the same time last year, as the median price reached $430,000.

REISA president Brett Roenfeldt said while the March quarter data only partially captured the impacts of COVID-19, it was nonetheless a terrific result.

“It indicates a very stable market and underlying confidence in the South Australian marketplace,” Mr Roenfeldt told Australian Property Investor Magazine

“The figures also indicated that 13 out of 19 local council areas had increases in their average median house price.

“Adelaide has always been stable, and the average median house price in Adelaide is the lowest in the nation, so there is a lot more upside in the South Australian marketplace than any other marketplace across Australia at the present time.”

Adelaide suburbs that exhibited the strongest growth over the last 12 months include the city centre, which experienced a median house price increase of 27.5 per cent, while the City of Mitcham recorded growth of 11.7 per cent.

Mr Roenfeldt said preliminary data for post-lockdown SA showed sales volumes dropped by around 50 per cent, with listings falling around the same amount as home opens were cancelled and auctions moved online.

“The thing was, because we talk about supply and demand, the buyers are still there in the marketplace, and there was still some very good prices being obtained over the last five or six weeks because of a lack of stock that’s available,” he said. 

Mr Roenfeldt said REISA members had reported seeing a number of investors from interstate looking at the possibility of purchasing Adelaide property,

“With interest rates the lowest they’ve been since the 1950s, as long as you’ve got some sort of security in your job, then the South Australian market is worth having a punt on, because you can get incredibly good value,” he said.

Perth potential

In Perth, transactional activity slowed significantly in April, but CoreLogic data showed median prices grew by 0.2 per cent over the month, the sixth-consecutive month of gains.

Research from ANZ showed median prices in Perth would likely only fall by 2 per cent due to COVID-19, the smallest reduction tipped across the country.

Real Estate Institute of Western Australia analysis showed listings fell to 11,611 in the week ending May 10, 30 per cent lower than the same time last year.

At the same time, REIWA said transactions increased for the third consecutive week following the initial COVID-19 plunge, rising by 32.7 per cent to 527 sales.

Leasing activity also rose by 31.5 per cent over the period.

Momentum Wealth residential investment committee chair Emma Everett said the data showed Perth was in line for a faster rebound than other major Australian markets.

“There are a few factors that we’re seeing,” Ms Everett told Australian Property Investor Magazine.

“One is the lower level of stock available for sale. We’ve come out of a tightening market in 2019, and we saw that trend throughout 2019 where we saw reducing levels of stock in the market for both rent and for sale.

“The rental market led that recovery, and then we saw a tightening in sales listings. 

“And of course this is an environment where we haven’t had much building activity. In fact, we’ve had a 15-year low in building activity in the Perth market so there hasn’t been that pipeline of new stock entering the buyer pool.”

Ms Everett said premium properties in Perth were also leading the market’s recovery.

“That upper quartile has been more active,” she said. 

“While there are still good opportunities and it is still a recovering market so those opportunities are at a good price, it is starting to become more competitive, compared to lower priced segments where there is possibly less competition.

“What’s been really interesting about the pandemic in Perth is that buyers and sellers have been sitting this out together. 

“Normally when we see buyers leave a market because of a disruption, sellers get anxious, fight it out and drop their prices to get rid of their product.

“Whereas in this market we’ve had a lot of withdrawn listings, we’ve had low levels of new listings so that contributed to that low stock.

“And now buyers and sellers seem to be re-entering the market since the home open restrictions have been lifted. 

“That’s led to more price resiliency than what you would normally expect.”

On the downside, major players in Perth's new home building sector are far less optimistic, with revised housing forecasts released this week indicated the market's nascent recovery had been derailed by COVID-19.

WA's Housing Industry Forecasting Group said it expected new home starts to come in at 12,500 in WA in 2019-20, pushing back any potential recovery until 2022 or 2023.

East coast concern

The positivity in Perth and Adelaide is in contrast to uncertainty over the extent that the COVID-19 crisis will affect home values across the country, particularly in Australia’s biggest markets.

Commonwealth Bank of Australia sent shudders through the market this week when its projections showed national median house price falls could range between 11 per cent and 32 per cent.

ANZ has predicted a 13 per cent drop in Sydney and Melbourne house prices over the next 18 months, while NAB has predicted a 15 per cent drop in those markets in the next 12-18 months.

Rental vacancies surged across Australian capitals in April, particularly in inner city locations.

SQM Research showed Sydney CBD was hit the hardest, as its vacancy rate blew out to 13.8 per cent, according to SQM Research.

Melbourne’s CBD rental vacancy rate rose to 7.6 in April, while Melbourne’s Southbank vacancy rate jumped to 13 per cent, SQM said.

Holiday locations have also predictably suffered, with residential vacancies in Surfers Paradise hitting 8.5 per cent and Noosa rising to 6.8 per cent.

SQM managing director Louis Christopher said the results were one of the largest one-month rises recorded on the company’s vacancy rate series.

“The blowout in rental vacancy rates for the major CBDs suggests a mass exodus of tenants occured over the course of March and April,” Mr Christopher said.

“This might be attributed to the significant loss in employment in our CBDs plus the drop off in international students.

“We are well aware of a surge in short-term accommodation now being advertised for long-term leasing.”

Mr Christopher said it was not clear how long markets would continue to experience high rental vacancies.

“If it is sustained throughout the course of the year, then we can expect far deeper falls in rents, which will be good news for tenants but a disaster for landlords,” he said.

“There will also be economic consequences with further sharp falls in building approvals likely, thereby risking a major depression in our residential construction sector as well as the rather obvious risk for house prices.”

Savills Australia director of residential Chris Orr was more optimistic, saying that a recent suburb record sales price in Sydney’s Surry Hills over the shutdown period indicated the market’s rebound potential.

Mr Orr said the undisclosed sales price surpassed the suburb’s previous record by around $4 million.

“Time will tell however, but the common belief amongst the industry is that we will see residential values rebound very strongly due to the lower volatility compared to other markets, lower borrowing costs for housing and the government’s comments around the importance of both construction employment and the housing market” he said.

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