With improving conditions in the mining and resources sector coupled with strong growth in other emerging sectors, it appears that the fundamentals are now aligning for the WA capital city.
The Perth property market looks to be entering the early stages of a potential growth phase of its property cycle and house prices within the WA capital have increased 14.75% in the last 12 months [1].
The Perth market has been thriving on the back of a growing economy, infrastructure spending, strong affordability, as well as being accompanied by decreasing vacancy rates, continued low-interest rates and lower levels of available properties for both owner-occupiers and investors.
Many suburbs within Perth experienced double-digit growth on the back of the past mining boom beginning in the early 2000’s and continuing up until the GFC in 2009. The Perth residential market experienced a phenomenal price appreciation, where the Perth Median house price grew 180% [2].
Perth has come a long way since the last mining boom and the economy has shown strong growth in recent years and the forecast looks promising for the economy on the back of infrastructure spending and diversification of ongoing employment.
The most recent the Western Australia state budget revealed positive economic findings for the state as a whole, especially considering the country was still dealing with the impact of the COVID pandemic.
Firstly, the unemployment rate is the lowest of all Australian states, at a healthy 3.9% accompanied with 1.5% wage price index growth [3].
The Western Australia government alsoE forecasts the state to add in excess of 34,000 jobs in 2021-22 and the report highlighted that 107,000 jobs have been created since 2017-performing economies [4].
The Western Australia government also forecasts the state to add in excess of 34,000 jobs in 2021-22 and the report highlighted that 107,000 jobs have been created since 2017 [4].
One key fundamental that is in place for the Perth market, is the healthy balance of affordability, which shows a market's capacity for capital growth.
Affordability is the percentage of household income being spent on the average mortgage. If households are spending a high percentage of their expendable income on their mortgages, the potential for the market to increase considerably in value is diminished. Based on current measures, this doesn't look to be the case for the Perth property market.
A historically "un-affordable" level that has represented the peak of Australian markets is approximately 35%. 25% is considered to be an affordable market and anything below 25% is indicative of a market with the capacity to grow.
As of June 2020, the affordability reached a healthy 15.8%. It’s interesting to note, that at the commencement of the previous major growth phase in the early 2000’s, the affordability measure for Perth was approximately 16% [5].
For the fundamentals to be truly aligned for the Perth market, the supply of property is equally as important as the demand elements. Ideally, demand will be stronger than the supply levels on offer for both owner-occupiers and investors to see the market experience sustained capital growth moving forward.
According to data provided by REIWA, there were 9,280 properties for sale in Perth at the end of November, the week ending 28 November 2021. This figure is a major contrast to the number of properties listed in November 2015, seeing listings nearly halve since peaking at 16,969 in November 2015 [6].
The below graph reveals not only a decrease in available property listings but also highlights the drop in median selling days, expressing further strengthening of the property market and underlying demand.
The below property stock balance graph provides insight into expected dwelling supply levels in the coming years across Western Australia which looks to be a positive for potential property investors.
Vacancy rates also play a crucial role in holding an investment property and the potential for a solid rental return.
The below graph reveals that vacancy rates have been consistently dropping since peaking in December 2016 at 5.5% and the Perth rental market has now been undersupplied for just over 2 years.
Available rental properties across Perth are now extremely tight sitting at a low 0.6% (considered an undersupplied rental market). This is well below the 3% level widely considered to be a market in balance.
With current building completions well below the required level, this is expected to further constrict the rental market and continue to drive rents (and subsequently prices) over the near to medium term [7].
Due to record low-interest rates and the vast improvement of affordability in the Perth market; with the substantial deficiency in dwellings in comparison to the expected
demand; there is expected to be continued upward pressure on prices in Perth over the next 2-3 years.
Next Steps
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Jarryd Gauci – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your circumstance.
References:
[2] ABS, Charter Keck Cramer
[3] ABS
[4] Western Australia State Budget 2021-2022 - Government of Western Australia
[5] Western Australia State Budget 2021-2022 - Government of Western Australia
[6] REIWA
[7] SQM Research