Perth

Perth’s property market decline looks to be slowing in 2020, but it will be a long, slow grind before property investment recovers from a post-mining boom slump, according to experts. Industry analyst and economic forecaster BIS Oxford Economics’ recent report points to an overall slowdown in the Australian property market.

Classic Oversupply

Perth’s median house price is predicted to grow 10 per cent in the three years to June 2021, just keeping up with inflation.

Meanwhile, median unit prices could rise only 5 per cent, which equates to a 3 per cent decline after inflation.

What’s contributed significantly to this glut, Andrew Wilson, senior economist with Domain says was the extraordinary number of fly-in, fly-out workers who created artificial rental demand.

At the heart of the issue is an increase in housing stock built while growth in WA was strong, as the new dwellings came online, it coincided with a downturn in mining sector investment which in turn saw the economy slow.

People who were coming into Western Australia during the mining boom started to leave so we had a drop off in population and a big increase in supply, that resulted in oversupply of the market.

As a result it will take some time for that oversupply to be absorbed, and that’s probably a good couple of years away. Analysts are forecasting minimal growth between 2019 and 2020, with stronger growth emerging toward the end of 2021.

Market Drift

What’s expected to perpetuate price weakness in Perth next year,  most analysts expect the bulk of property investors to remain sidelined from WA’s property market until there are clearer signals that flat rental demand is picking up. With WA more of a hostage to global growth than other Australian capital cities, the great unknown is when an economic upturn will start to reverse lower consumer confidence levels.

But despite the severity of the mining downturn, Perth property has held up remarkably well. But with rents falling lower than house prices, investors are clearly waiting for vacancy rates to close so that yields can improve before re-entering the market.

Clearly, it’s hard to pick how long Perth’s (property) oversupply tail will continue wagging. But house prices overall could easily expand or contract within a range of plus or minus three per cent. Given the renewal and rezoning-factor that’s still playing out in some areas – like Coolbellup, St James, Kensington, East Victoria Park, Hamilton Hill, Spearwood, Kardinya and Willagee – key pockets like these are more likely to continue outperforming the broader market.

But beyond short-term drivers like rezoning, investors should look at broader drivers of future growth, notably around good infrastructure, amenities, proximity to public transport nodes and urban development.

Scarborough and neighbouring suburbs to benefit from a master plan, which includes numerous public and private foreshore improvements and developments, with nearby suburbs like Innaloo and Karrinyup benefiting from upcoming major shopping centre upgrades.

Then there’s the activity centre of Joondalup to the north where further high-density dwellings are being earmarked for recently rezoned areas around the shopping and transport hub or areas closer to the city, like Bassendean and Warwick that are undergoing rejuvenation.

While good buying opportunities will start to emerge over the broader market within the next 12 months, Collins reminds investors that certain pockets are presenting attractive entry points right now. He says while there’s no need to panic-buy those entering the market at the tail-end of the current down-cycle stand to benefit the most.

Look for competing supply, keep away from fringe areas, be cautious of inner-city apartments where vacancy rates are between 12 to 15 per cent and focus on areas with good demand drivers, like unis/TAFEs, schools, employment nodes, transport hubs and other amenities, especially where there’s limited supply.

Affordability in Perth compared to Sydney and Melbourne is a big plus, particularly for first-home buyers, but very soft population growth (especially compared to when resource construction was booming a few years ago) means that all of the adjustment to the excess of supply over demand is occurring on the supply side, a pickup in demand from foreign buyers or any signals that investors from overheated east coast markets are looking for value beyond Sydney and Melbourne. While the down market together with relatively low interest rates will present good buying opportunities over the next 12 months, the risk of downward pressure on prices means investors must take a medium- to long-term outlook.

Projections: 2020 and beyond

Despite warnings by valuation firm Herron Todd White that Perth’s inner city may suffer from an oversupply in 2020, some property analysts say these fears are unfounded, that upcoming tighter Governmental regulation and financing requirements will ensure builders meet, rather than exceed, buyer demand.

We have had strong property market growth over the past 12 months and Perth has experienced a significant increase in unit development and a lot of construction is underway. There is a down turn in the mining sector and this is having some effect on the rental market. However, we should see renewed activity in oil and gas in WA taking up some of the slack.

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