OVERLOOKING PERTH

6th July 2007

Riding on the success of the recent boom, the Perth property market is set to become one of Australia's most rewarding growth markets over the next decade, according to Liz Sterzel of Property Wizards.

The Perth buyers' agent says the demand for housing in Western Australia will continue to surge as the population expands at a rapid pace and the rental market will become increasingly competitive - vacancy rates in Perth have already hit an all-time low.

"Now the Perth market has returned to a more sustainable pace, it's still riding high with the medium and long term growth outlook looking very attractive and many solid opportunities for selective investors," she says.

"The market has calmed since its frenzy in 2006 with average selling times returning to about 55 days, down from just 18 during the height of the boom, but prospects are still strong with rental competition fierce and a healthy stock of properties to choose from."

In the March 2007 quarter, stock of properties had risen to 13,042, after having dropped to an unusually low 5,682 in the same quarter in 2006.

"The number of properties on today's market sits a little above the long term average for Perth, at around 11,000, and there's no better time to pick up a bargain if you're selective," Sterzel says.

"Properties with good add-value potential are getting snapped up at market price, but if you have the time to hunt for them there's no doubt you can pick up a bargain."

Sterzel says the market normalization has deterred some buyers who may be waiting for the 'right time' to invest and advised people to act now to gain maximum benefit from the coming growth.

"Making the most out of property investing is about the right property choice and time spent in the market, rather than trying to time the market - and this is certainly true for the Perth right now, so if you delay buying, you risk missing out."

MARKET VALUE

Sterzel says property prices surged over successive quarters from March through to December in 2006, when the median price growth was higher than in a typical whole year at 12.5 and 8.6 per cent.

"Last year's growth came from a combination of low priced suburbs and premium suburbs. Some low priced areas rose in a 'catch up' to the point where almost any house on its own piece of land up to $300,000 was snapped up fast," she says.

Sterzel says suburbs and property types that have experienced high growth due to the property boom alone could expect a deflation in price of about 5 to 10 per cent as the market adjusts.

"At the height of the boom, some price tags in lower-end suburbs could have been overestimated, but many buyers were panicked by the thought of missing out and willing to pay it, so today some of those properties may well show little or no growth for some time," she says.

"In those suburbs which have solid growth drivers but the prices just got a little ahead of themselves during the boom phase, growth may have taken a stumble backwards but should soon be back on track as the forces of demand and supply influencing Perth come into play.

"Properties that have good reason to grow in value can expect to see a healthy 8 to 10 percent growth this year."

Sterzel says property owners should not necessarily rely on quarterly figures to indicate the growth of individual properties and should wait for yearly statistics.

"The number of properties sold during one quarter really isn't large enough to give a good indication of growth in the area and suburb data is made up of varied property types that grow at different rates, so it's best to rely on yearly figures," she says.

GROWTH DRIVERS

Sterzel says there were a number of solid growth drivers in the market that would continue to offer investors a wide range of winning long-term property investment choices.

"The drivers of growth are so strong in Perth now that once this period of stabilization has run its course, the upswing is likely to bring at least a decade or more of superior growth," she says.

"Even now we are seeing the predictors of strong long-term growth - vacancy rates are the lowest they have ever been at 0.8 per cent in the March quarter of 2007, which is a huge drop from 2000 when they sat at 3 per cent.

"Rental competition means rental rates have risen to meet demand. In 2004 the average rental rate was $165 a week and is continuing to rise from $270 a week recorded in March this year."

"There is strong pressure on accommodation needs that is only going to increase as the population grows and WA struggles to keep up with housing supply - in turn, this will support the prices of property in Perth.

The West Australian Planning Commission projects Perth population will grow to 2.075 million by 2031, which means housing must increase by more than 38 per cent.

The Department of Planning and Infrastructure tips the highest population growth areas in Perth to 2031 will be Wanneroo, Mandurah, Rockingham, Cockburn, Kwinana and Serpentine-Jarrahdale.

"The opportunities, lifestyle, climate, spaciousness and quality facilities like medical care and education are all attractions that make WA and Perth in particular, attractive to residents and investors," Sterzel says.

"Coupled with a tight labour market and wages growth, economic growth in WA is predicted to underpin housing demand and is now averaging 5.2 per cent each a year over ten years, which is forecast to remain at about 5 per cent until 2010.

"There are just more jobs in WA than people to fill them which means more people are being draw to the state, and because outlying mining towns don't have all have the infrastructure to grow their housing stock, the accommodation pressure falls back onto Perth."

RECENT MARKET DEVELOPMENTS

Sterzel says the coming months will bring forth the effect of financial changes to the two groups at either end of the property spectrum.

"The September quarterly property figures will give us an indication about the effect stamp duty concessions have had on the market," she says.

"First homebuyers in Perth have declined from 22 per cent in 2004 to 19 per cent for the quarter ending March 2007, but we are now seeing more return to the market in the wake of new stamp duty concessions."

In June, the State Government raised the stamp duty threshold from $250,000 to $500,000 for first home buyers.

"While affordability is still an issue for first time buyers, many have found ways to overcome this hurdle by teaming up with family or friends, starting off with a very modest home, or buying in an outer suburb with a lower price tag until they can afford to upgrade to their preferred location," Sterzel says.

"In the coming months we will also see the market impact of the recent opportunity for the baby boomer generation to inject up to $1million cash into their superannuation funds, as we have seen a number of people sell their properties to access cash."

WHAT TO WATCH OUT FOR

Sterzel says prices across the Perth market are likely to be quite uneven in the coming year and investors would do well to look at long-term growth prospects.

"Many buyers look at neighbouring suburbs to star-performers, but this isn't necessarily going to be the most reliable strategy for long-term success in Perth," she says.

"Long-term investment is the approach that will pay off in the Perth market and buyers should really look for growth drivers that are going to offer consistent increases over several years."

INNER CITY LIVING

Sterzel says there is much to watch out for when investing in Perth's inner city as it throws up a lot of risky buys, but clever investors looking for a unique property could come out ahead.

"There are a lot of apartments in Perth's inner city and few houses with their own land, so investors need to choose carefully to find properties that will offer good growth potential," she says.

"The older, scarcer character homes will often out-perform in the city, so look out for these opportunities but make sure all due diligence and checks and balances have been carried out to avoid buying a lemon or extra expenses down the track.

A two bedroom, inner city unit could range from $400,000 to $600,000, with furniture often included in the package. Views over the city and the Swan River are major factors affecting price.

Inner city houses are generally very scarce and in East Perth prices are set at a minimum of $1million, while in Perth city an old un-renovated home will fetch $600,000 or more.

"Investment in the inner city is traditionally high risk, especially in apartments as oversupply can become a problem which affects vacancy and growth rates - this hasn't happened in Perth just yet, but it's still a risk," she says.

"Inner city Perth and Northbridge is typically occupied by younger residents and Northbridge is currently being upgraded which should eventually lift the standard of tenants, but at this stage it could pose a problem for investors."

For more information, please contact
Mr Trevor Dunkley
Director
Property Wizards
trevor@propertywizards.com.au
Tel: (08) 9381 7450