We are now over a quarter of a way into the year and the markets are well and truly establishing their directions for 2018.
And the Perth market has shown its true colours.
Each month leading valuation firm Herron Todd White provide insightful commentary in their month in review and this month they provide a detailed coverage of the Western Australian property market which I have provided for you below.
In the report below Herron Todd White’s experts give their local area micro-view of the measures that matter most in their markets.
Here’s an extract from their April 2018 Month in Review report
As Western Australia’s economy is predominantly influenced by the performance of the mining industry, we have seen some extreme fluctuations over the past few years.
The post-peak period is often compared to the boom time, which is bound to disappoint in every measure.
By disregarding significant outliers, keeping in mind the countercyclical nature of the local market in comparison to national trends and instead of looking at the longer term, Perth is not doing too badly.
In fact, many measures have improved.
Like most marketplaces, Western Australia’s population trend has a significant impact on the overall performance of the property market.
The state’s net migration can be significantly affected by the mining industry, as the scale of some projects results in a significant demand for skilled labour in relatively short periods of time.
We are currently sitting at an unemployment figure of 5.7% which reflects a 0.7% decrease over the past 12 months and is now only slightly above the national unemployment rate of 5.5%.
Over a ten year period, Western Australia’s unemployment rate averages a quite reasonable 4.8%.
On a similar note, the Australian Bureau of Statistics reported employment growth of 1.9% in Western Australia last year.
The state’s net migration is increasing as a result of uplift in employment opportunities, with those relocating doing so with employment already in hand.
This is also likely to be having a positive effect on the rental market.
The Real Estate Institute of Western Australia recorded stable rental prices, a declining number of listings and a vacancy rate at 5.3% – the lowest rate in two years.
The mining sector
Recent improvements in commodity prices and economic state measures have boosted confidence levels among business owners and investors, resulting in long-awaited employment growth.
Contractors to the mining industry, who form a large part of the state’s employment pool, have responded according to the mining sector’s performance.
The Reserve Bank reported investment growth in the mining sector over the past year, as projects developed during the mining boom either required replenishment or simply a far larger scale of ongoing maintenance programs.
Western Australia’s rich lithium supply is partly responsible for the rise in investment.
The increased international demand for electric cars using lithium batteries is increasing the positive outlook for many new mining developments.
The world’s largest lithium mine happens to be located in Western Australia, along with numerous other projects which are yet to be developed.
Despite the mining industry’s strong influence on state performance, mining is only the fifth largest employer in Western Australia.
Health care and social assistance have become the leading industry in the state.
Construction, retail and education are close thereafter.
The Murdoch Health and Knowledge Precinct are a $200 million, mixed-use development expected to commence in late 2018.
The development will be located in the heart of Murdoch’s medical and educational area and is set to be the second largest employment centre in Perth.
The centre will provide commercial and medical spaces, offices and residential apartments.
We expect this to have a strong influence on the performance of the local market, particularly given its already sought after locality.
The area features good accessibility to both the CBD and Fremantle, a wide offering of housing types and entry level pricing remains within the reach of first home buyers in some of the surrounding suburbs.
In terms of construction, the oversupply of residential housing has been a hot topic over the past few years.
Construction commencements and commitments peaked as the mining boom was already waning.
The current, sometimes significant, oversupply is slowly getting soaked up by the market although only after seeing the inevitab le price corrections.
However, current first home buyer demand, although lower than traditional rates, is still increasing the supply in already chronically oversupplied localities such as Baldivis and Ellenbrook.
According to our recent analysis, Baldivis has 628 properties listed for sale with only 30 of those being under contract.
This reflects a current market activity rate or absorption rate of 5%.
Similarly, Ellenbrook, our second most oversupplied suburb, has 259 listings and a market absorption rate of just 11%.
Based on our analysis, Baldivis has two years’ worth of supply sitting on the market — without any further supply being added — which it is.
The market is largely driven by first home buyers and the majority of activity is still house and land package purchases.
First home buyers are often known to push the cost of their house and land package to the upper end of their borrowing capacity, therefore interest rate movements can have significant effects on the suburb.
There are likely to be many homeowners in similar suburbs thanking their lucky stars for the stable interest rate environment we have experienced!
Properties in such localities are often transacting at heavy discounts in comparison to just two years ago, due to oversupply and significant market competition for the limited buyers around.
Established properties have taken the hardest hit as the price difference between existing and new is affordable.
The problem with new dwellings is that once lived in, the value depreciates at a very high speed as the pool of buyers for a used dwelling is very small in comparison to the demand for a house and land package.
Buying a brand new house in Baldivis can be compared to buying a brand new car.
Once you drive it out of the garage, the car instantly drops in value.
Our valuers have reported several examples where near new product is transacting at a 15% discount to brand new products.
In the inner metro area, things are rosier and the market is predominantly driven by upgraders who are taking advantage of their chance to get in cheap.
Affordability with a sprinkle of confidence is, without doubt, the measure that matters the most in today’s market.
Upgraders have already pushed the prices up in sought after suburbs such as the Cottesloe.
Shelly and Waterford, situated along the Canning River, have also experienced uplifts in median prices.
The two suburbs are seen as upgrade targets to those in secondary areas and prices are attractive on historical measures.
Cannington is one of the very few secondary suburbs that have experienced an improvement in the past couple of years.
Prices are on the rise as the $350 million redevelopment of Westfield Carousel shopping centre progresses.
The expansion is expected to create additional employment when it opens in late 2018.
The overall residential performance is heavily influenced by the performance of the mining industry, amongst many other sectors.
Increased hiring has resulted in a return to positive net migration in recent times.
The predominant dependence on the one industry is something the state is trying to move away from by diversifying economic reliance into other industries.
Health care, construction, retail and education are the industries responsible for the majority of Western Australia’s employment.
Several large developments within these industries are currently being built, pushing the sectors for further improvement.
Attractive lending rates have a huge impact on today’s activity, especially in prestige suburbs.
It is mainly upgraders taking advantage of the opportunity however we have seen some increase in investment activity as well.
Oversupply is also a measure that has caused many headlines in the newspapers.
Outer suburbs have taken the hardest hit while inner metro suburbs are slowly absorbing the excess stock.
We are currently seeing a patchy performance as each suburb has an individual response or sensitivity to changes in economic factors.
Some suburbs are booming whilst others are declining.
Overall, the market is tracking in the right direction and we have confidence in the short-term performance of the majority of Perth’s inner and secondary suburbs.
South West WA
The South West is one of the fastest growing regions in Western Australia.
As the rest of the state is slowing in population growth, the South West is continuing to grow and expand.
So what are the drivers of the market in the South West?
The region is a very desirable place to live as it boasts amazing beaches, surf, a good climate, a relaxed lifestyle and world-renowned wineries.
Because of these characteristics, people want to live in the region.
The demographics of the people moving into the locality range from young adults who love the beaches and work in hospitality, young families who want their children to experience a relaxed and outdoor upbringing and of course the baby boomers who have reached or are getting close to retirement and want to live the golden years away from the hustle and bustle of Perth.
The increasing population has helped the property market.
The Perth market has been weak for an extended period of time and values have been declining because of a slow down in the state’s resource sector, continued weakness in the Perth economy and general economic uncertainty.
The South West has traditionally followed the highs and the lows of the metro market, however, for the first 24 months the region bucked this trend and was more resilient and generally stable.
It has only been in the past twelve months that the South West market has started to weaken but nowhere near the levels of the Perth market.
The strong population growth has been a reason for this resilience.
The South West could potentially benefit from the Perth market improving.
There are signs that the Perth market has bottomed and has started to stabilise.
Historically a strong Perth market flows into the South West as many mum and dad buyers and small-time investors look at investing in a holiday home in the South West.
Another driver of the South West market is the tourism industry.
With the Australian dollar steady and lower than in previous years, we have seen significant numbers of interstate and international tourists visiting the region.
These numbers have increased considerably in recent times which has also helped underpin the overall local economy.
On a local level, the region would benefit from the expansion of the Busselton/Margaret River airport.
The airport is looking at attracting more interstate flights and in the medium term potentially some international flights.
This could fuel the tourism industry and have a positive effect on job creation.
On a national level, the continuation of low-interest rates is paramount.
If the interest rates were raised it would take some prospective purchasers out of the marketplace and also restrict homeowners trading up.
If this occurred, we would expect the South West property market to weaken.
Therefore, drivers in the South West property market hinge on an increasing population, a strong tourism industry, performance of the Perth property market, local development such as the Busselton/Margaret River airport and continuation of low-interest rates.
Read more at the source of this report : Herron Todd White.
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