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Peak in new housing supply bodes well for investors

Wednesday, 7th Sep 2016
Categories: Market News, Newsletter

 

commencements

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The number of new properties being built in Perth is peaking, according to ABS statistics, heralding the end of the latest supply-side cycle, which bodes well for property investors.

A total of 32,060 new residential dwellings were completed in Western Australia in the year to March 31, according to the latest ABS statistics.

This is a record high for the state, which has recorded an increase in the number of new properties being built every quarter since June 2013.

The near 3-year growth in housing supply in Perth has been fuelled by lower interest rates, which have made buying a property cheaper than renting, as well as the state government’s first home owner grant, which is $10,000 for new builds but nothing for those buying existing stock.

However, the latest growth cycle is set to end because the number of housing commencements in Perth, that is the number of dwellings that are starting construction, is actually falling.

After hitting a record high in March 2015 at 32,577 properties, dwelling commencements have been on a downward trend hitting a 30-month low of 26,387 in the latest quarter.

This means there’s less new housing stock in the pipeline and the number of build completions will peak and then begin to fall – our research analysts expect as soon as next quarter.

As this pipeline of new stock continues to shrink, we will see a rebalancing in the Perth property market as demand catches up to supply again.

This bodes well for property investors as the record amount of new housing supply over the past few years has been one of the main reasons for Perth’s sluggish property performance in recent times.

Is the Perth market turning a corner?

As well as a significant reduction in the amount of new housing supply coming to market, there are also some other signals that the Perth market is at a turning point.

The number of properties for sale is well below its most recent high of nearly 17,000, which was reached in November last year. The number of properties for sale has dropped to about 14,000 in recent weeks. However, with spring traditionally being the busiest time in the property market, we’re likely to see this number rise somewhat in the near future.

Furthermore, the case for renters to purchase their own property has become less compelling, meaning they’re more likely to remain in the rental market.

This is because rental prices have come off the boil since the end of the mining boom, which has made renting in premium locations more affordable.

Therefore, renters can choose between leasing a property in a nice established area that is close to the CBD and other amenities, or buy their own property, which is likely to be in a less-attractive location.

These factors will help in rebalancing the Perth property market going forward.