The Perth median price has continued to edge upwards, with REIWA reporting a slight increase to $553,000 in the March quarter (from $545,000).
The price range of property sales was significantly compressed this quarter, with a 66% increase in the percentage of sales occurring between $400,000 – $800,000 and cooling sales activity in the premium market ($1 million and above).
First-home buyer activity stayed low after its peak in June 2013, however, we have recently seen an upsurge in this market as first-home buyers rush to meet the July 1 cut-off for the current duty concessions.
Under changes to the State Budget, from July 1 first-home buyers will only qualify for transfer duty exemption on purchases under $430,000 for established properties (previously $500,000) and will pay a discounted rate for properties between $430,000 – $500,000 (previously $500,000 – $600,000).
We expect that this increased out-of-pocket cost will slow the entry of first-home buyers to the Perth market for the next six months as borrowers adjust to the extra cash savings required.
This quarter has seen a slight decrease in property sales (-6% compared to March qtr 2013) and an increase of properties on market to 10,277 (up from 8,700 in December).
Our buyers’ agents report that sellers are generally still expecting strong prices for their properties. However, this extra stock allows investors to be more selective with their purchase criteria and to negotiate directly with the seller, instead of competing with multiple other offers.
The Perth Riverside Project continues to progress, with the State Government releasing the third site for development. The former “Chem labs” site on the corner of Hay and Plain Streets in East Perth has 16-storey potential for a mix of retail, residential and commercial stock.
While the redevelopment of Perth’s city centre will provide new amenities and opportunities for residents and property owners, investors should be wary of purchasing apartments in these new developments.
While it’s reasonable to expect an increase in demand for apartment living as Perth grows larger, the sheer number of apartments coming into some sectors of the market means that there will be very little upward pressure on prices in these areas.
Quite the contrary – as new developments enter the market, existing property owners will find that the brand-new properties nearby can make their own property seem old and undesirable by comparison.
With minimal land value and ongoing competition in the market, it’s highly unlikely that investors will achieve a strong return in the long term from these development projects.
For investors wanting to take advantage of the growing demand for low-maintenance properties with a short commute to the city, our recommendation is to focus on properties close to, but not in, the CBD, with good land value (e.g. a villa or townhouses instead of an apartment), close to public transport and in tightly-held locations.
Of course, for investors willing to commit to a slightly higher cash flow property, houses and development sites remain excellent prospects as well. South-west WA has enjoyed a strong quarter, with 20- 30% increase in sales volume and median price increases in Mandurah, Busselton and Bunbury.
[sam id=37 codes=’true’]This will no doubt provide some confidence to home owners and investors in the region. However, new investors should be cautious of investing in this region on the basis of these short-term results.
The unfortunate truth is that the south-west region does not provide the fundamentals required for house prices to grow at the same rate as a major city such as Perth.
In addition, there is also ample housing stock (both on market and pending) to satisfy buyer demand and so there is little pressure on prices to grow significantly over the long term.
Resource-based towns such as Kalgoorlie, Port Hedland and Karratha continued to lag, with investors and developers finding it difficult to sell their properties.
The Perth rental market remains challenging, with over 5,000 properties advertised for rent (a 45% increase on the same time last year), a vacancy rate of ~4% and median rent declining to $460 per week (source: REIWA).
It is not uncommon to see rents reduced by $50 – $150 per week when a lease comes up for renewal. With more properties in competition, investors who do not adjust their asking price will most likely face a long vacancy.
It’s important to keep sight of the real cost of vacancy in this market. For a $550/week property, a rent reduction of $50/week costs $2,600 per year – unpleasant news for any investor.
However, leaving the rent too high could cause a six-week vacancy at a cost of $3,000 and a great deal of stress. “Trying out” an above-market price is a natural response but by the time you reduce your price your listing will be harder to find and could easily go stale.
In a crowded market your listing will only be on page one of property search engines for a short time (sometimes less than a week!) and so can be overlooked by tenants who are spoiled for choice.
Our recommendation is that property owners meet the market price early to prevent the need for further discounting and prevent the cost of a prolonged vacancy.