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Are investors returning to the Perth market?

Friday, 25th Jun 2021
Categories: Market News

Despite Perth’s residential property and rental markets recording their strongest performances in years, one segment that has so far been less active in Perth’s market recovery has been investors. However, data is signaling that this is starting to change…

Recent data from the Australian Bureau of Statistics reveals that investor lending has increased 164% from April 2020 to April 2021, up from $171 million to $453 million. While this level of investment is still below what we would expect for a rental market with below one per cent vacancy, it provides a leading indicator that investors are beginning to return to the market.

Interest from interstate investors is surging and Momentum Wealth has witnessed an 81% increase in enquiry from interstate investors during the 2021 financial year as eastern states investors look to access the opportunities the Perth market is offering.

Why are investors turning to Perth?

The end of Western Australia’s rental moratorium in late March has seen the median rental price in Perth rise to $425 per week and Perth house prices have risen 7% so far this year – two factors that are helping to increase confidence and entice investors back into the market.

Although the Perth rental market is showing signs of stabilising, there is still an undersupply of stock which will place upwards pressure on rents. As expats continue to return to Australia and movement between states continues to increase, the supply of rental stock could further tighten, placing additional upwards pressure on rents.

Despite having recorded strong growth of 11% during the 2021 financial year, Perth remains considerably more affordable than other markets within Australia. For investors, this presents more opportunities to enter the market as well as access to properties with greater investment potential than those that are similarly priced on the east coast. Interstate investors are often interested in sites with development potential over the longer-term, with homes in good condition that can be rented in the short to medium-term. These sites are available at a lower price bracket in Perth, allowing interstate investors to proactively build equity.

This, combined with historically low interest rates, offers buyers the opportunity to enter the market at a lower price point and is encouraging news for prospective investors.

Not all areas will perform equally

The combination of affordable entry into the market and increasing rents is presenting investors with the option to target both growth and yield, however, property selection remains critical. Not all suburbs within the Perth metropolitan area will perform equally and a lack of long-term growth can arise as a result of poor property selection.

Investors will be well placed to look towards suburbs which have limited oncoming supply, a key factor that will help support growth over the longer-term. The suburbs which benefit from consistent buyer demand are typically found closer to the Perth CBD, with superior amenity, and attract workers with typically stronger and more stable incomes. They are often also situated within the zoning of popular schools, which adds to their demand profile.

By contrast, some Perth suburbs have shown recent short-term price increases, but are likely to experience suppressed price growth in the years to come. High levels of oncoming supply and greater distance to major activity centres means these suburbs face an extended period of slower growth.

 

As the Perth market continues to offer strong opportunities and the dual benefits of strong yield and growth, investor activity looks set to continue to rise. Property selection remains critical for investors looking to access these opportunities, and buyers need to be wary of overpaying due to heightened competition. To speak to our team in more detail about where we are seeing opportunities in the current market, or for advice on your individual property strategy, request a free consultation via the following form.