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Why astute buyers are looking towards Perth

Wednesday, 9th Sep 2020

After garnering national attention in early 2020 when consecutive months of price growth signalled the progression of recovery for Perth’s property market, astute buyers are once again turning their attention to opportunities in WA’s residential housing sector. While the market continues to show strong signs of resilience thanks to the State’s fast and effective response to the COVID-19 pandemic, a combination of factors is leading to increasingly favourable conditions for buyers.

Market resilience

Despite temporary interruptions under social distancing restrictions, Perth’s property market showed strong resilience during the COVID-19 outbreak, with the temporary pause in demand from buyers counteracted by an accompanying reduction in activity from sellers – many of whom withdrew from the market until the return of more favourable conditions. Having not experienced a significant influx of distressed sales, the market has remained relatively protected from conditions conducive to significant price drops, with the effective response to COVID-19 in WA subsequently supporting a faster return of activity than most markets across Australia. During the months of July and August, property sales transaction volumes tracked around 40% higher than the same period in 2019.

Lower downside risk

Being in the early stages of (albeit stalled) recovery has offered the Perth property market a surprising advantage throughout the COVID-19 pandemic. While factors such as comparatively low overseas population growth and subdued investor activity had imposed negative pricing pressure on the market in recent years, these same factors have reduced the downside risk posed to Perth during the pandemic compared to other markets that currently rely far more heavily on these sources of demand (Melbourne and Sydney together accounted for 84% of overseas migration in 2018/19).

While Perth remains less exposed to the withdrawal of these renters and buyers, the market also entered COVID-19 with a pre-existing shortage of stock, which has largely mitigated downward housing price pressures, compared to oversupplied and potentially overheated markets where prices and rents have a lot further to fall.

Tightening stock levels

Since social distancing restrictions have eased in WA, the tightening of rental and sales stock has continued, with the market recording the lowest combined residential stock levels in over seven years in mid-2020 as the return of buyers and tenants has added  further downwards pressure to already low supply.

Rental Stock

Reducing rental stock has already had crucial flow-on effects for the broader Perth rental market in recent months, with average rental vacancy rates reaching a 12-year low at just 1.6% in August 2020. These tightening conditions have translated into increased competition on-the-ground, with our property managers reporting higher attendance at home opens, increasing competition from tenants, and rising rents for new tenancies as prospective renters compete for properties. With the COVID-19 emergency period extended in WA, a temporary ban remains in place for rent increases for existing tenancies; however, our team anticipate broader rental growth once this temporary legislation is lifted.

High rental yields

Combined with the market’s affordability and the impact of rising tenant competition, these conditions have supported increasingly attractive rental returns, with investment properties in Perth outperforming those in Sydney and Melbourne quite considerably for gross rental yields (4.3% for houses in Perth, compared to 2.7% and 2.9% in Sydney and Melbourne respectively according to CoreLogic). On the ground, our buyer’s agents have seen some great opportunities to purchase properties at higher yields and reduced holding costs, with one of our most recent purchases in High Wycombe (bought by our buyer’s agents for $372,000) achieving a gross rental yield of 5.59%.

Affordability

The June Housing Affordability Report from the Real Estate Institute of Australia showed that Perth was once again the cheapest State across Australia to purchase property, with only 24.0% of family income required to meet loan repayments compared to the Australia-wide average of 34.5%. For those who are in a position to enter the market, these conditions are providing a unique opportunity for buyers to invest at a lower price point, or trade-up into their area of choice, often with the benefit of closer proximity to the CBD and larger land content than they would have access to in other markets across Australia in the same price segment.

Some suburbs already growing

While lowering stock levels are being seen across Perth’s housing market, these conditions combined with suburb-specific demand and supply factors are already translating into broader improvements across some market segments. This has been seen particularly in suburbs where tightening stock levels are being further compounded by limited oncoming supply, and where high online property views are also indicating strong demand from buyers. While some areas of the market (particularly outer regions that are still facing significant levels of oncoming sales stock) have some way to go in their recovery, areas that are experiencing these combination of factors have been seeing increasingly positive indicators for some time in the form of lowering days on market. This has already translated into price growth in some areas, with Mount Hawthorn, Beldon and Melville just a few of the suburbs to outperform the broader market over the past year, recording 6.3%, 4.0% and 10.8% annual growth respectively in the 12 months to June 2020.

Conditions aligning for buyers

Perth’s residential property market is currently offering unique opportunities for investors, both from a cash flow and price growth perspective.

The combination of the market’s affordability, improving rental conditions and early growth indicators are providing a potentially time-limited and lucrative window for buyers with the right property selection criteria to enter the market at a reasonable price point while also benefiting from a strong rental yield and positioning themselves to leverage future market improvements.

To speak to our team in more detail about where we are seeing opportunities across the market, or for more insights into these market indicators, please feel free to get in touch or request a consultation via the following form.