Perth has been a crazy market this year so far. With soaring house prices, and increasing rents, we delve into the details below.

EXECUTIVE SUMMARY

Investors/owners who have been in the property market for at least a year or who have been considering selling should not miss this window of opportunity to sell at a high price. Nearly 90% of properties sold this year have sold above the asking price in WA.

THE GOOD, THE BAD,

The Good: Perth property prices have risen approx. 18.9% in the past year[1]. This is due to factors such as:

  • Less properties being listed for sale (down 41.5% since Q2 2023[2])
  • More competition/demand (days to sell houses have dropped to 8 from 12 since Q2 2023 and days to sell units have dropped to 10 from 22 since Q2 2023[3]

For example, the median house price rose 3.2% (in one month!) from $630k in April, to $650k in May This price is 17.1% higher when compared to May 2023.[4]

The Neutral: Rents starting to stabilise in WA:

  • Median rental price has remained the same for two months in a row. [5]
  • Perth’s vacancy rates have increased slightly from 0.5% to 0.6% since the end of Q1 2024.[6] (This means that the supply of rental properties are increasing, hence the slowdown in rent prices)
  • Construction company insolvencies have increased approx. 25% in FY23/24 compared to FY22/23.[7]

The Bad: Several factors are showing signs of a potential slowdown in the Perth property price boom.

  • Uncertainty around interest rates, given higher than expected inflation signalling signs of an interest rate rise (some suspect August) later this year[8]
  • More mortgagee sales coming onto the market around the country.[9] This is backed by statistics showing that the number of properties that have been resold within two years in Perth sits at 8.5%.[10]
  • Migration cuts around the corner will start to curb demand for housing[11]

OUR IN-DEPTH TAKEAWAY

The rental market has started to stabilise & peak, and rental yields will start to slowly plateau, given that property prices are still increasing. The number of investors who have been purchasing properties purely for high rental yields, will start to diminish as differences between the rental yields & interest rates shrink, causing a slowdown in prices.

The new WA rent increases laws may act as a soft ‘rent-control’ scheme and will artificially affect the supply and demand of rental properties. This may cause the areas around Perth that have been experiencing high rental growth mainly due to the extremely limited supply start to drop off and cause some areas to experience a surge in demand.

This was experienced in Canada which implemented rent control for units in 1979. The completion rate of new units plummeted heavily as investors became unsure of returns. The completion number did not see steady growth until rent control was removed in 2018.

With the above in mind, we believe the Perth property market will have some further, but not as crazy, growth in the coming months as we will see an uptick in homebuyer purchases given that government homebuyer incentives will reset in the new financial year.

Towards the end of the year, investors may no longer find the rental yields as attractive compared to the performances of the past year, and the number of investors purchasing properties may start to decline. Investors buying rental properties in WA have been one of the main attributing factors for the high growth.

Overall, there will be a slowdown and potential plateau in property prices, especially with the uncertainty of sticky inflation, interest rate rises, lower yields, higher property prices and general economic uncertainty.

When established property prices increase drastically, there is a trend for people to choose to build new homes, and a slowdown in established property price growth. However, given the current ongoing uncertainty around the construction industry for new builds (e.g. Collier Homes, and the recent Niche Living fiasco) these people are less likely to engage developers/builders.

Developers too may be less interested in building new housing to help supply the rental market in this current market, as they may no longer receive the market rent or yield, given the already high costs of labour, materials and interest rates. The uncertainty around builders/construction companies and their limited capacity to take on new projects is also severely limiting the new supply of housing despite developers reporting strong land sales.

[1] https://www.abc.net.au/news/2024-06-27/perth-property-rises-set-to-rise-again/104026878

[2] https://reiwa.com.au/news/signs-rental-market-is-easing-as-perth-rents-remain-stable/

[3] https://www.abc.net.au/news/2024-06-24/perth-property-market-insanity-cash-buyers-snap-up-homes/103991502

[4] https://reiwa.com.au/news/signs-rental-market-is-easing-as-perth-rents-remain-stable/

[5] https://reiwa.com.au/news/signs-rental-market-is-easing-as-perth-rents-remain-stable/

[6] https://sqmresearch.com.au/graph_vacancy.php?region=wa-Perth&type=c&t=1

[7] https://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/insolvency-statistics-current/

[8] https://www.news.com.au/finance/economy/interest-rates/rba-expected-to-start-raising-rates-again-after-may-inflation-data/news-story/a6d9c6768f9b2b1f91f8c1dc0e26d21d

[9] https://www.realestate.com.au/news/jawdropping-mortgagee-sales-now-on-the-market/

[10] https://www.afr.com/property/residential/rising-house-prices-mortgage-stress-spark-short-term-resale-20240529-p5jhjw

[11] https://www.abc.net.au/news/2024-05-15/federal-budget-immigration-reduction-intake-ballot/103839856