As an inner city real estate agent with a close eye on the market, I disagree with eastern states commentary about their increasingly gloomy predictions for WA real estate.
A recent hysterical prediction by ANZ Bank claims Perth property prices will fall 13 per cent over the next year, swiping $70,000 from the median priced home.
In my view, Perth property prices will plateau or rise over the next year, rather than fall. And there are two very big reasons for this.
In a nutshell, they are demand and supply.
Firstly, demand for housing in Perth is strong, shown in part by having the highest rents relative to property values in the country.
As independent property forecaster Gavin Hegney has long explained, high rents affect every property, because they act like an insurance policy underpinning market values.
High rents encourage renters to buy their own home, because a mortgage doesn’t cost too much more than a lease. This boosts entry-level demand.
From the landlord’s perspective, high rents improve profitability. Not only does it help them weather interest rate rises, but it encourages them to pay more for the investment property in the first place.
Perth’s high rents will continue attracting investors, including many from the east, feeding another pool of demand.
As rents continue to rise, many renters are comparing the rent vs buy option with many renters deciding to purchase a home as it makes more more financial sense and provides the security of owning their own home. Hence, more demand for real estate.
New demand will also come from an anticipated increase in skilled migrants, who are expected to come to Perth for its ample job opportunities. There is definitely money in Perth as unemployment is low and consumer spending still seems strong.
Housing supply however, is not growing fast enough. Based on the State Government’s own population projection, the Real Estate Institute of WA estimates the existing shortage of 8000 homes will more than double within four years.
There is another big reason why properties won’t fall in value as they will on the east coast — our homes are already undervalued. While house prices are hotly overinflated over east and the falls are noticeable, Perth is selling below replacement cost in many cases, especially following a 20 to 40 per cent hike in construction costs over the past year.
The market is slow to reflect change, but pressure is mounting for higher build costs for new homes to translate into bigger prices for established ones. Many buyers simply don't want to take the risk of expensive building costs and long completion times. Therefore, more demand for established homes.
Mr Hegney has done the sums on Perth’s property values based on a complex formula used by the Reserve Bank of Australia. By his calculation, Perth dwellings are undervalued by 10 per cent.
Again, this supports the notion there is pressure on prices to increase — not drop.
The real impact interest rate rises will have on property prices will be through borrowing capacity.
I’ve heard some cases of borrowing capacity dropping by a third. Less money in hand means people can offer less for homes, and this is where the downward price pressure kicks in. But in my view, it’ll only counteract other pressures that would have otherwise driven prices up. And my bet is that as a result of reduced borrowing capacity, there will be an increasing demand for property in the lower end of the market, in particular well presented units under $500k, in inner city areas.
If we throw in rising inflation which may start to bite into the hip pockets of many people and there is a possibility of a slowing economy, we may see some downward pressure on prices down the track.
NEWS MAY NOT BE GOOD FOR APARTMENT OWNERS
I do have concerns with the apartment market on several fronts. Unit values did not increase to the same extent as houses over the past 12-18 months. In addition, strata levies have generally shot up as a result of the requirement for compulsory 10 year maintenance plans. This adds to the cost of owning such a property. Although demand for new apartments has ballooned, build costs have lifted up to 40% in the past 12-18 months but values haven't increased anywhere near that level. This means developers are forced to seek higher sale prices.
I'm not a fan of buying off-plan or new apartments mainly because you'll have to pay a premium and take a risk on the quality of the finished product. And based on prior performance, units don't appreciate as well as landed property i.e houses/town houses/villas.
Buyers are getting very wary about this and combined with the plethora of new apartment construction dotted around Perth, I find it difficult to see how values can rise in the short-medium term.
ARE YOU SELLING AN APARTMENT?
Do it right! Presentation, pricing and using an experienced, hyper-local agent is the only way to give you confidence that your property achieves the price it deserves.
Don't end up under-selling your property due to a lack of expertise or fear-based advice. Unfortunately this has been happening in the Arcus Apartments and Union Malting complex where units selling for $465k earlier this year are now selling in the low $400,000's! The market is not falling that fast!.
For now, the hot market of 2021/22 has cooled BUT we will still see strong demand and price rises for:
larger family homes up to $2.0M within a 3-5km radius of the CBD in areas such as North Perth, Mt. Lawley, Mt Hawthorn, Leederville, West Leederville,
bespoke inner city character homes/town houses between $700k and $1.5M, and
distinctive and larger apartments under $700,000 that are well presented, sensibly priced and located in inner urban lifestyle hot spots.
first home buyers in the sub-$400k apartment market will be active with values plateauing.
How can Claude Iaconi help?
If you need to get a better understanding of the value of your home or investment property in the current market, contact me, Claude Iaconi of Edison Property directly on 0412 427 877. You may be surprised what your property may be worth.
With a strong local, inner city presence for over 25 years, I can provide you the right advice and am positioned to deliver the results you desire and provide you with an excellent experience too.
Contact me today to discuss your property and see for yourself the Claude Iaconi difference!
I look forward to working with you.