Perth residential market poised for recovery, buoyed by mining boom: CBRE

Perth residential market poised for recovery, buoyed by mining boom: CBRE
Perth residential market poised for recovery, buoyed by mining boom: CBRE

There was a 13% increase in the volume of Perth residential sales in the March quarter, with first-home buyers and investors returning to the market, according to CBRE’s first-quarter WA market view report. The firm says a recovery could be under way. 

CBRE recorded 5,663 sales in the Perth metropolitan area over the first three months of the year, compared with the 5,268 in the previous quarter and a “noticeable contrast to conditions in the prior 12 to18 months, when sentiment was low”, according the firm’s associate director of global research and consulting Sam Reilly. 

Total house sales over the 12 months to March reached 22,676, a slight decline from the 23,032 over the previous 12 months. 

Perth house sales peaked in early 2004, with just over 40,000 sales recorded. The market reached just under that peak in March 2006 and traded strongly until early 2007, when the ill winds from the GFC first began to be felt. 

Perth’s inner-city apartment market has been particularly strong, buoyed by the resources sector through the second quarter, with both owner-occupier and investor demand on the rise. 

Unit sales rose from 1,191 in the December quarter to 1,852 in the March quarter, with CBRE recording 6,654 unit sales over the year to March. The unit market last peaked around March 2006 with just under 10,000 annual sales. 

“Perth’s inner-city unit market has experienced notable change recently, with oversupply now correcting as take up is being driven by the resource sectors, a trend that clearly highlights the tangible impact resource growth is having on Perth at present,“ says CBRE director of valuation and advisory services Michael Veletta.

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Perth house prices increased by 3.9% over the quarter to a median of $487,500, though they are up only 0.5% over the past 12 months, according to Residex data.

The RP Data-Rismark Daily index has Perth home values up 0.76% for quarterly growth to June but still down 1.78% year-on-year. 

Reilly says it is too early to point to a full market recovery, but the increases in sales volumes suggested renewed interest from buyers following the price corrections that had substantially reduced capital values across all sectors of the market. 

The increase in activity has been attributed to the flow-on effect from oil, gas and iron ore industries in the state, which CBRE says “continues to underpin the market due to high infrastructure spending and increased employment opportunities”.

Deloitte Access Economics is forecasting the WA economy to grow by 4.2% annually between 2012 and 2017. 

However, Reilly warns that while the resources boom provides Western Australia with a strong advantage in terms of economic growth, the risk of a slowdown to commodities markets remained. 

“If that were to occur in a substantial manner, the residential market would immediately come under pressure,” he says. 

The report notes recent REIA data showing Perth vacancies trending down in the December quarter to 2.3%, compared with 2.8% in the September quarter, with population growth creating increasing demand for rental accommodation.

 


 

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Looking ahead towards the second quarter, CBRE notes that the more affordable sub-$500,000 house market in Perth has fared the best as first-home buyers targeted affordable housing stock following some easing in interest rates. 

First-home buyers have faced competition in this price bracket from investors. 

Veletta says investors are focused on the fact that rentals are beginning to reach parity with debt servicing levels. 

“Price declines have obviously assisted to increase demand levels, but the high levels of rental growth have been equally important to stimulate this area of the market,” he says. 

The latest REIA/Deposit Power report records a 4.1% increase in the number of loans to first-home buyers from 3,757 in the December quarter to 3,910 in the March quarter. 

First-home buyers were attracted back to the market despite housing affordability worsening in the state of the March quarter, with the proportion of family income needed to make mortgage repayments increasing by 22.9% to 24.1% over this period. 

Rent payments as a proportion of family income increased by 0.7% to 20.8% of family income. 

Further up the price spectrum, the $500,000 to $1 million bracket remained soft and is expected to stay relatively subdued until improved levels of buyer interest in the first-home buyer market begin to flow on. 

“As owner-occupiers that currently own houses in the sub-$500,000 bracket begin to trade up, the middle range markets should see demand levels improve. This is a gradual process, however, and impacts on capital growth will take some time,” says Veletta. 

Outside of Perth, a recovery appears unlikely, with regional areas such as the Peel region continue to experience oversupply. 

“Mandurah continues to chug along with no great signs of recovery, limited demand, small buyer pool and growth in employment concerns,” Veletta says. 

Activity levels also remain low in WA’s land sales market, with developers offering a range of incentives to boost demand levels. Established stock is slowly being taken up, with slight increases in building approvals recorded.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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