Tight Perth market a struggle for tenants but river of gold for investors

Choosing to buy an investment property in Perth instead of renting an affordable or appropriate house or unit for student living is an emerging trend in the Perth property market.

International student arrivals into Western Australia, year to date March 2023 based on student visa approvals, is 21,480, according to Australian Government Department of Education data, while a Curtain University study averages domestic enrolments per annum at 25,000 students, however there are four other universities with additional intakes.

Property market demand from returning international students, a growing population and new mining job opportunities are all putting pressures on rental supply.

“We’ve got about 550 rentals on our books and opened seven on the weekend just past so vacancy rates are at 1 per cent and I think most agents are around 1 per cent so it’s very low,” Steve Lally, director, Ian Hutchison Real Estate told Australian Property Investor Magazine.

David Coldham, owner and director, Coldham Realty described families living in caravans for want of a rental property to call home.

“They can’t find a rental so it’s pretty tight, and we’re finding that there is a bit of a trend for parents to want to buy an investment property for their children, if they can, for studying in Perth because they can’t get rentals, so, we’ve got a couple of enquiries on the books at the moment for when we’ve got something to show them.”

In a statement this week about the housing crisis nationally, Real Estate Institute of Australia’s (REIA) CEO, Anna Neelagama highlighted there were 5022 Airbnb short term rentals in Perth, putting additional pressure on availability for long term rental solutions.

Rental house values and yields

While not good news for tenants, the demand pressures are increasing Perth’s rental property values and gross rental yields which is bringing investors back.

Perth has been a standout in terms of annual change in rental rates to April 2023 at a 13.2 per cent increase, which is the highest of all Australian capital cities (CoreLogic).

Real Estate Institute Western Australian (REIWA) data says in the week ending May 14, there were 2,047 dwellings available for rent in the Perth and the greater Perth markets, but just 21 per cent were rented in that 7-day period (380 houses and 249 units) while the top five rental suburbs in those days proved to be Perth (with 26 dwellings rented), Scarborough (16), Claremont (14), Subiaco (14) and Rivervale (12).

Liesa Leddick, director, Century 21 River Residential South Perth told API Magazine suburbs in the south-eastern corridor are doing well.

“It’s a really hot market, especially for houses, not so many apartments and units, which are taking a bit longer to sell, but houses are selling in hours sometimes, not even days and its mostly eastern states investors that are ringing almost daily and who just often buy a property unseen, with the intention of renting it out.

“Those houses are a little bit cheaper, so for the Sydney and Melbourne investors, for them obviously compared to their market, they see it as very, very cheap and now rents here are going up because our vacancy rates are almost zero because of demand, so you can buy a house for $350,000 to $400,000 and then get $500 a week in rent or sometimes more,” Ms Leddick said.

Of all capital cities in the past week, Perth’s gross rental yields is at 4.9 per cent, which are second only to Darwin (6.4 per cent) and is one percentage point above the national average of 3.9 per cent (CoreLogic, Monthly Housing Chart Pack, May 2023).

Property values

Steve Lally said Perth’s property values has had a good couple of years though interest rates looked set to change the city’s course.

“After the tenth interest rate rise though it all seemed to be stopped in its tracks for about three weeks, and we thought, oh well, the honeymoon’s over but then the next weekend, which was the third weekend, it all sort of turned back on track to what it’s been doing for the last couple of years.

“I think it’s just that all the major factors over here are so strong, and the population growth is the main driver, but mining is really pumping over there, and I’m told that it should be pumping for another three or four years as everyone has contracts in place and they know what’s coming, at least in the few years ahead,” Mr Lally said.

Perth dwelling values over the past 12 months have shown an increase to 1.6 per cent to the current median dwelling price, which is the second lowest nationwide after Darwin, of $572,837, the median house price of $599,240 and units at $409,457 (CoreLogic Hedonic Home Value Index, May 1).

Unlike all other capitals except Adelaide, Perth’s top ten suburbs with the highest 12-month value growth on dwellings, all showed a positive growth and include Mandurah with the largest annual change of 8.7 per growth and median value of $511,033, Kwinana (8.4 per cent, $428,712), Rockingham (7.5, $506,264), Armadale (5.9, $467,289) and Serpentine-Jarrahdale (4.7, $533,169).

Days on the market for houses in Perth was 18 (CoreLogic, quarter to April 2023) and vendor discounts in Perth are the least of all capital cities, down 2.8 per cent compared to last year’s 3 per cent.

Reflecting the tight housing market, Perth’s current new listings compared to the same period last year are down 17.5 per cent.

South Perth and surrounding suburbs, such as Como and Kensington offer properties in the $1 million to $4 million.

“A lot of the suburbs south of Perth are still undervalued yet you’re a couple of kilometres from the sea, you’re on the river, you can walk to the stadium, you’ve got good transport and there’s still relatively reasonably affordable housing,” Mr Coldham said.

Looking to the future

Despite interest rate pressures and tight supply, much of the data and indicators on the ground show Perth offers investors opportunities.

“I’m finding the interest rates haven’t affected anyone buying anything at all and prices are good, for example, right now, I’m listing properties that three or four years ago were $300,000 to $400,000 and are now asking $800,000 and I bought a block of land three years ago for $350,000 and its now worth $500,000 so I think it’s another boom like it was 2012 but just settled down a gear compared to then,” Ms Leddick said.

Mr Lally says Covid helped Perth.

“Suddenly, our isolation is more of a strength than a weakness, especially with the mining, people previously would live in Bali or on the east coast, but a lot of people had to stay in WA, and they haven’t left plus our lifestyle is amazing, Perth’s like a big country town with the strength of the city.

“The market is certainly pretty good though the apartment market is a little oversupplied and they haven’t moved in value much of late, but the housing market is 20 per cent up for south Perth anyway, where anything between $1 million and $4 million are doing very well.”

For Mr Coldham, he believes the future of Perth’s property market looks bright.

“It’s basic economics, supply and demand, and while ever our economy’s going okay, we’re going to get people moving into the state and interest rates are still going to bite but it takes a long time for people to get to that point and think, gee whiz, I’m going to have to get rid of the house.

“We didn’t have that surge that Melbourne and Sydney had so we’re not coming from a situation where we’ve ever been overpriced, we’ve just played catchup, so there’s no reason to think our prices will fall like that have in Sydney and the migration is keeping that fairly insular, so, in this market, there’s a shortage of stock, there’s plenty of buyers, if you’re at market price, you’ll get a buyer,” he said.