With rental prices on the rise and median prices slowly recovering from the trying 2011 property market, many West Australians are wondering what is in store for this year. Those in the know are predicting that 2012 is already showing signs of market recovery, with the high rental prices drawing investors back out of hiding. We spoke with four experts in the WA real estate market, Ian Cornell, Principal at Michael Johnson & Co Professionals and Deputy President of REIWA, Brett Thorp, Principal at Thorp Realty, Hayden Groves, Director/Principal of Dethridge Groves Real Estate, and Rob Druitt, Principal of First National Real Estate Druitt and Shead), to gain a better understanding of what 2012 will bring.
Broadly speaking, what are your expectations for Real Estate in WA in 2012?
Ian Cornell (Michael Johnson and Co Professionals): The market is now experiencing higher rents caused by a low vacancy factor, for which there are a myriad of reasons, namely the inactive sales market set amongst a growing population. The Australian psyche is slanted towards home ownership, be it both firstly as a home and then later to invest in another. I believe that later this year, renters will start to recognise that the high rents they are paying are going nowhere, and will consider buying a property, as opposed to renewing their lease.
Hayden Groves (Dethridge Groves): After the extraordinarily low sales volumes of 2011, most agents anticipate an improvement in market sentiment in 2012. According to REIWA, sales volumes in January and February are up by around 25% on the same period last year, giving agents some optimism that the worst is behind us. Volumes may increase but my view is that prices will remain stable for the remainder of the year.
Rob Druitt (First National Real Estate Druitt & Shead): The Perth market has plateaued after a receding market (more so at the top end) since the second quarter of 2010. The fall in prices has not been insignificant (around 10%) since the interest rate fuelled a kick- up in our market over the summer of 2009/2010. This year we expect greater turnover but little overall capital growth with a more buoyant market, but not one that will run away as it did in 2005 to 2007.
What trends do you predict will come forth or continue in 2012 (e.g. property bubble, return of investors, etc)
Ian Cornell: The higher rents that we are experiencing are arousing investor interest. However as investors were not long ago registered on the “endangered species list”, their return may be slow. Other factors, such as political, financial and confidence are also causing investors to be a little shy, but we should see them returning to the market this year.
Brett Thorp: I would expect to see a return of the first homebuyer to the market over the next 12 months as rental prices increase. Also, I would expect to see more investors in the market as rental returns improve.
Hayden Groves: With rents rapidly increasing, and property values flat or falling, investors are beginning to re-assess the option of buying properties with a healthy yield. The share market remains volatile and with interest rates relatively stable, I predict property investors will re-emerge in greater numbers this year.
Rob Druitt: The biggest dynamic in the Perth property market is the demand for rental properties. REIWA figures show that the Perth vacancy rate dropped to 1.6% in February and is still falling. Rents are rising and this will assist in the overall market recovery as investors trickle back into the market.
What are the opportunities for buyers to keep an eye out for in 2012?
Ian Cornell: As financing for developing property has been difficult for a number of years, and capital values have squeezed the margins, I believe opportunities exist in purchasing potential development sites, such as 2, 3 & 4 units. Immediate rental returns and the likelihood of strong capital gains on the improving market, with dual development possibilities, run in the favour of buyers.
Brett Thorp: As there is still a lot of stock on the market and the number of sales has been down, we have seen a drop in the median sale price of established residential property. As a result there are some very good properties available to the astute buyer.
Hayden Groves: Vacant land sales have been down on previous years, and with building trades reasonably available, buyers could try their hand at building and selling at a margin after completion. You need to watch out for capital gains tax issues, but if prices at the lower end begin to move as we expect them to then the ‘build to sell’ idea is one to consider.
Rob Druitt: The top end of the market has been ravaged in Perth in the past 18 months. If you are buying in a premium suburb in Perth at a higher price range, there are some excellent opportunities. Improved rental returns are also encouraging for investment in quality locations.
More specifically, are the key suburbs where you predict growth in 2012?
Ian Cornell: I believe it’s not a matter of where you buy, it’s what you buy. Lifestyle, proximity to public transport, proximity to employment and affordability are all important factors to consider. Buyers shouldn’t paint themselves in a corner by predetermining one or two suburbs in their suburb selection. In addition, once a property has been identified, don’t buy from the hip pocket alone. It’s a good feeling to be affected by a little emotion, even passion; after all you’re probably going to be there for at least 7 years.
Brett Thorp: Given the increase in activity of infrastructure upgrades in Esperance and the likelihood of a significant increase in export of bulk minerals through the Port, Esperance will offer some great employment and investment opportunities.
Hayden Groves: Hamilton Hill is a strong growth prospect. It’s a large suburb but much of it is close to Fremantle and the Cockburn Coast, an area undergoing substantial re-development at the moment. Buyers could choose any suburb (there’s not many!) where there’s been positive median house price growth in 2011.
Rob Druitt: We are not expecting much capital growth in Perth suburbs in 2012. Once confidence returns, which might be 2 to 3 years away, it will be the inner 15km ring and locations close to the beach and Swan River that will see the best capital growth.