It is no secret that the Perth property market is currently experiencing a downturn as residential sales drop and listings are on the increase. Not only is the market in a “correction phase”, demographics are changing and new planning frameworks have been released that will impact on the future of the market and how the city will grow in the next 30-50 years.
It is useful to find out as much information as you can about the current state of the economy and where it looks like Perth’s growth is heading in order to make informed decisions about property investment that will hopefully reap solid capital gains in the coming years.
First up, in terms of the current state of the economy, most of us are familiar with the impact that the mining downturn is having on WA. Let’s take a look at some of the main statistics to get a true picture of where we are:
One of the more obvious reflectors of how the mining downturn is taking its toll on the WA economy is population growth. For many years WA was the fastest growing state in Australia with people flocking from interstate and overseas to take advantage of what the boom had to offer. WA is now experiencing a dramatic decline in population growth as FIFO workers are no longer rushing to our shores for work.
Adding to the population slowdown, unemployment is rising to above the national average (6.4%) as companies continue to let go of staff and new employment opportunities are limited.
Our Gross State Product (GSP) is also taking a hit, particularly as iron ore prices remain low. Back in 2010/11 WA was growing GSP by over 7% but now it is below the national average down to a forecast 2% in 2014/15.
The culmination of these rather depressing economic statistics, is that overall business confidence is declining rapidly. According to the ANZ Property Council Property Confidence Index, WA is currently showing the lowest levels of confidence across all property sectors in the country.
So what does all this mean if you are thinking about entering the property market in WA?
Following tremendous periods of growth in 2005/06 and again in 2012/13 thanks to the mining boom, median house prices in Perth reached over $550,000. In the last 12 months, prices have experienced a slight downward correction with the median house price now sitting at approximately $536,000 according to REIWA and the unit price is approximately $430,000. While house prices have experienced a minor correction, it is the unit market that is bearing the brunt of the downturn with prices down 5.5% in the last 12 months.
Given the significant growth Perth experienced in previous years, there is certainly scope for a further correction in prices and while we may be nearing the bottom, it doesn’t look like we have reached it just yet.
Further evidence of the impact that a slower economy is having on the residential sector is the rental market where Perth’s vacancy rates are the highest since 2009 (close to 5%) according to REIWA figures, with over 8000 homes available for rent in Perth.
The rising vacancy rate has caused a significant decrease in average rents with yields now down to 3.9% for houses and 4.5% for units. Overall, the lower yields put increased pressure on property purchasing decisions that will result in long term capital growth.
Property ownership predictions
To assist you in making the right decision when purchasing a residential property, there are a number of demographic and government policy related issues to be aware of that are likely to influence people’s housing choices into the future.
Firstly, in terms of demographics, it is important to note that, particularly due to our ageing population, couple households are tipped to become the most common household type by 2023. We have a rising number of empty nesters and WA is likely to be home to at least 1 million people aged over 65 by 2050.
This means that demand for smaller homes are on the rise as households get smaller and also people’s lifestyles change. Low maintenance, lock and leave properties are more and more in demand.
Along with smaller properties comes the rising importance of locations near public transport and other services, particularly for older people who are becoming less reliant on cars to get from A to B.
Along with changing demographics, the state government has released the Perth @ 3.5 Million Plan that aims to increase urban consolidation and minimise Perth’s expanding urban footprint as we head toward a population of 3.5million by 2050. This presents future opportunities for denser redevelopment and more profit as increasing density around activity centres and transport hubs becomes even more common.
In terms of future investment, investigating where the new activity centres are planned and where urban infill is likely to progress will provide excellent insight into future growth hotspots. It is also advisable to look for areas that are in high demand but have low supply, this will improve the likelihood for future capital gains.
Contributed by Warwick Hemsley, Chairman QWest Paterson Valuers and Property Consultants