Despite Perth’s property market downturn in the last 12 months due to the effects of the economic slowdown and decreasing population growth, it seems that apartment development has continued at a relatively strong pace.
There was plenty of media coverage earlier this year raising concerns around whether Perth was heading for a major apartment glut, with many believing that demand would not match the increasing supply. Many punters expected apartment approvals to decrease as demand dried up, however in spite of concerns, dwelling approvals for flats, units and apartments have continued to rise.
According to the ABS, approvals for flats, units and apartments have steadily increased over the past 12-18 months, with 3139 approvals in the six months to August 2015 compared with 2484 in the six months previous and 2315 in the six months to August 2014.
While apartment approvals have been increasing, new house approvals have declined slightly, with 10,832 approvals in the six months ending August 2015 compared with 11,527 in the six months previous and 12,391 in the six months prior to that.
While developers continue to seek approval for new projects, the latest preliminary sales statistics from REIWA represent a significant fall in unit prices for the last 12 months. The average price of a unit is down 5.6% to $420,125 in September 2015.
So how can we explain the seemingly contradictory evidence around the current state of the apartment market? If we look at approvals it would seem that demand is expected to continue and even increase, if we look at current prices it looks like that demand is weakening.
One way to consider this situation is that while Perth is currently experiencing a correction in property prices due to flagging buyer demand, there is confidence from many in the industry that the market will improve in the next 12 months, although we may see some further price adjustment downward prior to any uplift. This would explain why developers are continuing to seek approval for projects that are likely to come on the market in time for a market improvement in 2016-17.
Some of the positive signs that the market in Perth may be reaching the bottom of this downward cycle include the sustained period of low interest rates that we have been experiencing.
The Aussie dollar is also relatively low which is encouraging overseas investors to buy into our local market. Anecdotal evidence in the market shows that interest from overseas buyers, for example Chinese investors, are taking advantage of falling prices in Perth and snapping up units and apartments, particularly in new developments.
It is also important to note that a number of significant construction projects are still moving forward and are providing a boost to the WA economy. The continuation of activity in the construction industry is providing some diversification away from our economies strong reliance on the mining industry.
Projects such as the new Perth Stadium at Burswood, Elizabeth Quay, Perth City Link, the Perth Airport expansion and the proposed new Forrestfield rail line to the airport are all providing added certainty to the economy, particularly in terms of construction, engineering and related industries.
These positive aspects of the economy are encouraging signs for investors who are considering now as a good time to enter the residential property market. The apartment and unit market is an attractive prospect given lower average prices and better long term rental yield.
Demographically speaking, looking at long term trends in household sizes and lifestyle, smaller dwellings are likely to grow in popularity. Our population is ageing, with one of the biggest growth household types being single women over 55. Young couples without children or empty nesters are also growing as a proportion of household types compared with families with children.
These changes to our demographics mean that many people are looking for smaller dwellings, easy care, lock up and leave type homes rather than a large house and land to maintain.
The important features to look for if considering investing in the middle to high density markets is location in terms of public transport and other amenities such as shops, schools, restaurants and bars as well as public open spaces.
In terms of the dwelling itself, new builds are popular, with communal facilities such as bbq and entertainment areas, swimming pools and gymnasiums an important feature to many. If you are considering a lower price point, an older flat or unit in an established area that has good access to surrounding facilities and amenities is likely to grow in value over time.
Warwick Hemsley is Chairman of QWest Paterson Valuers & Property Consultants, a boutique firm based in Perth, Western Australia. Visit the website to find out more: www.qwestpaterson.com.au