Perth Property Market
Western Australia’s surging mining industry is delivering Perths property market home owners a once-in-a-generation windfall in the form of rising house values. Official figures show that Perth house prices rose more than 20% last year – the biggest rise of any capital city except Darwin. For home buyers, however, Perth has become a town of broken dreams as affordability plunges and prices climb beyond reach.
Further ahead, analysts tip continued strong growth over the first half of 2006, although the market remains highly dependent on commodity-led population and wages growth.
What’s been happening
Boom times continue out west. According to the latest Australian Bureau of Statistics house price index, Perth’s average established house price rose 6.6% in the December quarter to be 22.5% up over the year.
Only Darwin managed a higher growth rate (up 23.2% over the year), while traditional leaders Sydney (down 3.9%), Melbourne (up 2.9%) and Brisbane (up 3.5%) lagged behind.
Separate figures from the Real Estate Institute of Western Australia (REIWA) tell a similar story. According to the REIWA, Perth’s median house price rose 5% over the December quarter to $325,000. Prices were up 18% over the year to December. The median unit price, meanwhile, rose 4% over the quarter to $258,000.
Perth now has Australia’s fourth highest median house price after Sydney, Melbourne and Canberra.
In other signs of a buoyant market:
* Median rents in Perth soared 25% last year
* The city’s residential vacancy rate plunged to a new low of 1.6%, indicating a very tight rental market ahead.
* The average number of days it takes to sell a property decreased from 45 to 37 over the December quarter. This compares to more than 100 in parts of Sydney and Brisbane.
Builders at capacity
As demand for housing surges, builders are struggling to keep up with demand. Analysts say Perth’s residential construction industry is at capacity, with widespread skill shortages driving up prices for tradesmen and adding to the price of new homes.
Areas on the move
The following suburbs recorded the largest growth in median house prices over the 12 months to December 2005:
* Coolbinia (up 48.5%)
* Parkerville (up 45.2%)
* Stirling (up 42.1%)
* Claremont (up 41.5%)
* Ascot (up 40.2%)
Further ahead
Analysts remain upbeat about the outlook for Perth’s housing market with prices continuing to be buoyed by the commodities boom. In fact the fundamentals supporting house prices look very good. They include rising real wages, surging demand for labour, strong population growth, rising corporate profits and large infrastructure investments around the state.
Real Estate Institute of Australia president Tony Brasier said: “The indications from the December quarter median prices are that underlying demand for residential property continues to be very strong in Darwin and Perth, reflecting the buoyant economies in the Northern Territory and Western Australia.”
However Perth’s reliance on resource-led growth could be its Achilles heel. ABN Amro chief economist Kieran Davies fears the Perth boom will begin to fizzle later this year in line with an easing in global commodity prices. He notes that at present, Perth is building as many new houses as Sydney despite having just one-third the number of households.
Last updated: 8th March 2006
Perth to Defy Housing Slump...West Australian
01 June, 2004
Fears that the Perth housing market could be about to slump have been hosed down by a report from a leading economic forecaster, which found prices would rise further over the next three years.
BIS Shrapnel, one of the country's most respected housing industry analysts, predicted the median Perth house price would climb 15 per cent to $286,000 by 2007.
Such growth would give Perth the second-most buoyant housing market of all the states, with only Brisbane expected to enjoy faster gains.
The report contradicts growing concerns that the Perth real estate market will follow Sydney and Melbourne into the doldrums on the back of recent interest rate rises.
BIS Shrapnel senior property analyst Angie Zigomanis said there were still good opportunities for people to invest in the property market.
The bright outlook was based on Perth's booming economy, which would result in an increase in people wanting to live in WA. There were already signs WA was becoming a more popular place to live.
"The WA economy is expected to outperform the Australian economy, driven by increased investment spending in mining and resources," Mr Zigomanis said.
"This will encourage more job opportunities, which will lead to greater migration to Perth from other capitals and other States."
BIS Shrapnel forecast house price growth would be much slower than in recent years as interest rate rises began to bite, but Perth would weather the storm more easily than other cities.
It said Sydney and Melbourne homebuyers would experience almost no capital gain on their property over the next three years as those markets remained flat.
The report also had some good news for first homebuyers, with Perth tipped to remain one of the cheapest places to buy. BIS Shrapnel predicted Adelaide would have the lowest median price by 2007, followed by Hobart and Perth.
Master Builders Association director Michael McLean said the strong economy made homeowners more confident about renovating or buying a bigger, more expensive property.
"One of the reasons we believe that the market will sustain its strength is that we have not had the huge volatility that other cities have had," he said.
"We also have a number of large developments in the mining and resources sector and even the agricultural sector, which contributes to a very healthy economy across the board and that translates to more homes and more renovations each year. All the economic fundamentals are in place.
"People investing in the market, whether it is an existing home or a new home, should enjoy a very good rate of return."
Both the sale and rental of property in Western Australia are covered by government legislation which is generally thought to be fair, equitable and readily comprehensible for both the vendor/landlord and purchaser/tenant.
SALE OF PROPERTY Most residential property is advertised by a real estate agent on behalf of the vendor at a stated "asking" price against which, the intending purchaser makes a written offer. Once the offer is accepted and signed by the vendor, the contract is binding on both parties. An increasing number of homes are being auctioned, but these still tend to be more expensive or unusual homes.
THE PERTH MARKET There are a number of basic ingredients that contribute to the value of property in Perth, as elsewhere, but a little local knowledge can assist new arrivals. Relevant factors include proximity to the central business district, the Swan River and the ocean. Because so much of Perth has been built in very recent times (more than half of all housing since 1980), older homes in the older suburbs (which are generally close to the CBD) are in great demand. Most houses sold in Perth can be valued on the basis of their replacement cost with factors such as character, historical significance, gardens, block size, location and views then added into the equation. The number of houses available for sale in a given area and the reason for the sale can also be important factors. Currently it costs between $200,000 and $500,000 to build a four bedroom, two bathroom project home in Perth. At the lower end of this price range are the basics of a four bedroom modern project home; at the upper end the rooms will be larger, there will be an extra bathroom and probably an additional entertaining area of some sort. A large part of the additional cost will be in the finish.
The house then needs to be put on a block of land which, depending on area, could range from $120,000 to $300,000 or more. Block values are probably easier to estimate in either very old or very new areas. In the newer but established areas the picture is generally just a bit more blurred. In all cases, recent sales provide the best guide.
Perth leads house price growth in 2005
Each year REIWA produces a general outlook for the WA real estate market and last year REIWA forecast that Perth would be the leading city for growth in property values in 2005. Last week this was confirmed by the Australian Bureau of Statistics.
According to the ABS Perth is continuing to record strong growth in residential real estate values while most other capital city real estate markets are flat or in decline. The Bureaus house price index for Perth in the year to March 2005 rose by 9.9%. In comparison the index for all of Australia rose by only 0.2%.
The two largest capital city real estate markets Sydney and Melbourne, recorded declines of 3.4% and 1.7% in their respective house price index for the year to March.
It did not surprise REIWA that the ABS figures confirm Perth is now the leading capital city for house price growth. However we were surprised that it happened early in the year. We expected to see Perth leading the nation by the end of the year. This is an indication of just how poorly the larger capital city markets are faring and how well the WA real estate market is performing.
The market in Perth and regional Western Australia is stronger than all other States because our booming State economy is attracting large numbers of interstate and international migrants. The additional new arrivals are boosting demand for housing in both the rental and home purchase markets.
We are also seeing a large share of the wealth created by the booming State economy finding its way into the investment sector of the property market.
The heartening aspect of the latest ABS data is that the strong growth in WA property values is not excessive and more likely to be sustainable than other States. The WA real estate market is benefiting from having experienced a more modest and sustainable boom in property values. In contrast the larger eastern State capitals are experiencing roller-coaster markets.
REIWA expects the real estate market in WA to settle into more normal patterns of house growth in the year ahead consistent with longer-term trends.
Given that we have referred to REIWAs end of year market outlook it is timely to also review our other projections for 2005. Once again the news is good. REIWA correctly anticipated the revival in the middle to higher priced ranges of the Perth established housing market in 2005. An illustration of this is the strong performance of Claremont, a western suburb of Perth that has under-performed the market in recent years. In the year to March 2005 the median house sale price in Claremont rose by 23.3%.
REIWA also correctly anticipated the continuation of the strong demand for affordable housing in WA, which has been a feature of the metropolitan market and now has extended into regional markets of WA. In the year to March the median house sale price in Bunbury and Geraldton rose by 36.3% and 33.3% respectively.
Understanding Property Values
Understanding your homes current and possible future value is sound financial management. It can help you to decide whether or not to sell, to renovate, how to price your property and to ascertain if its holding its value or not in current conditions.
Keeping up-to-date with comparable sales in your neighborhood is a good starting point. These details can be acquired through a number of government agencies, however the most convenient source is your local REIWA member agent. They can provide you with a comparative market analysis or home appraisal, taking into account your homes unique features.
The current market shows general trends in favour of coastal properties and some semi-rural areas which are experiencing a strong growth in values. Townhouses, units and apartments are highly sought after and rising in value, prestige properties in the western suburbs are in strong demand and several outer urban suburbs are doing surprisingly well after several years of slow growth.
Its an interesting market with very strong demand, low stock availability, steady interest rates and rising prices. Its no wonder that so many people are keen to find out what all this might mean for their home. However, its not just market conditions that affect prices its also the neighbourhood in general and some other factors.
In order to evaluate your homes potential value there are a range of important influences you should be mindful of.
A strong local community feeling is attractive to homebuyers and good for values. Look for new initiatives by the local council, areas of urban renewal through the State Government or the promotion and redevelopment of commercial centers.
Attractive and safe neighborhoods are also sought after. Some areas have covenants on property titles which aim to keep high standards in the appearance of homes, such as restrictions on fences and roofing materials. Well maintained parks, facilities and bike paths contribute to higher values.
The location of popular schools is a strong influence on families and many parents will pay a premium to be close to the school of their choice for their children.
Demand by investors and developers for redevelopment sites will boost the values of large blocks that allow development, especially in the inner city. Big blocks appreciate well when they can accommodate urban infill and grouped dwellings.
The appearance of renovators large waste bins in the front yards of homes is a good sign that residents are happy and prepared to invest money to remain. Often this coincides with higher property values.
Finally, future plans by local authorities to rezone your areas development potential can greatly affect property values. Other infrastructure plans have a similar effect, especially underground power, railway and road developments and new shopping centres. All these things contribute to values and desirability.
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