Perth resale market tempered by first home buyers taking the plunge

A shortage of properties on the Perth resale market is behind a gradual push in prices, especially in the $400,000-$550,000 segment, according to one expert. And this shortage is being exacerbated by many former renters taking the plunge and becoming first home buyers.  

Generous government grants, and the absence of stamp duty in certain price categories, is a huge drawcard for a group burnt by a spike in rents of up to 20% earlier in the year. Many have decided to abandon their leases and buy.  

Damian Collins, CEO and founder of Momentum Wealth, said the first home buyer group had rationalised that, with the government grant up from $7,000 to $10,000 for new homes and $3,000 for established – and not having to pay stamp duty of up to $17,000 on properties under $500,000 -- they might as well buy.  

He believes a balanced property market in the WA capital would have around 13,000 properties for sale – not the ‘’9000 on offer now’’. It’s been as high as 18,000 properties in 2010, he said.  

Citing the 600 clients on Momentum’s rent roll, Collins said the city’s vacancy rate had climbed to 3.5% as a result of tenants breaking their leases. A balanced vacancy rate is 3%, he said. The higher figure is putting downward pressure on rents which have dropped 3%-7% over the past 12 months.  

‘’It’s all cyclical,’’ he said. ‘’Yields for investors are 5% whereas they were 5.5% then. The outlook is still reasonably strong. I can’t foresee interest rates rising or any other factors impacting on prices.  

‘’Investors are becoming active and we have lots of clients who are finding it harder to find properties. Prices are gradually rising - but it’s certainly not booming.’’  

Collins said established properties in the northern corridor were most buoyant – even though they are 18-20km and 25-35km from the CBD. Padbury and Craigie, and Heathridge and Clarkson were all first home buyers’ suburbs in the 1980s but they are now being targeted by investors.  

‘’Perth is generally going well across the board. The busiest area is the $400,000 - $550,000 mark. The higher priced properties ($1m-plus) are not moving much in price but are at least transacting, which they weren’t 18 months ago.  

‘’Mining towns that ran up significantly during the boom are still suffering – these include Port Hedland and Karratha where prices and rents are down. Rents of $2000 per week were always unsustainable and those investors who purchased in those towns will likely suffer both rental and price declines.’’  

Jarrad Mahon, director at property manager Investors Edge, said the Perth market had tightened post federal election to 8893 listings. This is in line with July’s figures but below the September figure of 9200.  

Mahon is happy that listings are tightening, even though he usually gets lots of new stock in spring.  

The overall rental market has slowed down, he said, with average rents at $470 – down from $480 in April, May, June and July. There have been much bigger drops in some areas – from $20 to $100 a week - in the inner city which is more dependent on fly-in-fly-out workers whose numbers are dropping as a result of the downturn in mining, and a slower corporate sector.  

The middle ring suburbs are not so tied in to these workers and not so affected by their absence.  

Mahon agreed the more generous first home owners’ grant will result in more work for builders, especially in the outer suburbs. Also, builders will be able to pick up workers from the mines following the recent slowdown.  

A problem might be the extra time it now takes to clear land titles – up from one month to possibly two - meaning it will take longer for them to clear. This will put upward pressure on land prices, especially in the outer suburbs, he said.  

Mahon said he liked suburbs that have performed well since the last downturn, especially among the middle-ring suburbs 4km -10km from Perth. He said apartments in these suburbs were becoming popular as people move from villas into apartments where there’s less maintenance and gardening.  

Citing changes to the planning rules governing the building of multiple dwellings, Mahon said average mum-and-dad investors intending to build, say, the usual two apartments on the one block, were being priced out of a rising market. They could not compete with those with the resources to build the now allowed six-eight apartments who could afford to pay more for the same blocks.  

Mahon said popular suburbs were those in the ‘‘middle ring with cafe strips’’ such as Maylands, Bayswater, East Victoria Park, and Cloverdale on the airport side. Median prices for units here are $400,000-$500,000, and there’s a strong rental demand, too.  

‘’We are in a sellers’ market with property prices holding,’’ he said.

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