Slowly but surely, the Perth property market has been showing signs of recovery for the last 12 months after feeling the effects of the end of the mining boom.
It’s a long time coming, but is Perth real estate finally out of the doldrums?
Paul Glossop, managing director of buyer’s agency Pure Property Investment says improving data in the Perth housing market is a positive sign for investors.
Vacancy rates have fallen to below three per cent, which “hasn’t been there for the best part of five years.”
Speaking to Auction Day, Glossop cited figures from the Real Estate Institute of Western Australia which show rental vacancy rates dropped to 2.9 per cent in December 2018, compared to 5.5 per cent in December 2017.
Investment in housing is expected to see “a big turnaround” and is forecasted to increase to 5.1 per cent to 2021 which is up from -2.8 in 2017/2018.
Rental values are also increasing, with prices are expected to rise significantly this year across the whole of Perth by at least 10 per cent.
Glossop says this will take average rental yields from 4-4.5 per cent to 4.5-5 per cent, making Perth property more attractive to investors and compelling more tenants to become home buyers.
Not for the feint-hearted
In property, timing the market is crucial but difficult.
Getting into the Perth market now, when the recovery remains wobbly, could mean you’re holding an underperforming investment, Glossop says.
If you can’t count on good timing, the key to any good investment is cashflow.
“Even if you don’t see growth in 3-5 years, you know that your cash flow will hold you through,” Glossop said.
He admits Perth is “probably not the market for first-time investors.”
The Perth real estate market will best suit investors who already have exposure in other growth markets, have two or three investment properties and are looking for diversification.
For a good deal, investors should look for off-market properties and extremely motivated vendors.
“Unfortunately, that usually means death, divorce or debt is the rationale for where we are seeing the best opportunities,” Glossop said.
If you’re not buying at “an absolutely cracking price”, it’s probably best to sit back for another 6-12 months before investing.
Glossop warns that any investors looking to buy in Perth should do so with a long-term mindset and have nerves to steel to ride through the rough patches.
“The best investors that I’ve seen are the ones who come through our doors who are looking at a 20-30 year hold.
“When they look back at the properties they’ve bought, there’s always usually a key story that they bought when times were good and they held their nerve during the short periods of time where nothing was really happening.
“But they knew they bought extremely well and they could manage their cashflow,” he said.
Long-term growth hotspots
Population growth in the east and south-east of Perth will attract infrastructure to support those communities, which is why those areas are ideal investment hotspots.
“From Forestville, the airport and right through to the foothills of the CBD are where the disproportionate amount of investments are happening and will happen over the next 10 years,” Glossop said.
The sweet spot for entry-level investors is the $350,000-$480,000 price point where properties are giving close to 5 per cent yield.
“That’s a relatively safe bet in that market now, as long as you are buying well, that is the absolute key there
Suburbs in the $300,000 – $450,000 price point
Suburbs in the $550,000 – $850,000 price point
Factors influencing Perth prices
Wage growth is the driving factor that will ultimately propel Perth out of the weak housing market, Glossop believes.
While mining is still an intrinsic part of Perth and Western Australia’s economy, he said the city will become a “metropolis that will ideally decouple itself from lithium, iron ore, coal and all those exports”.
But investors should shift their focus from mining to infrastructure to gauge where the property market will be heading.
“What we are seeing is big dollars spent on Perth as a city, from transport links to health and education.”
Infrastructure spend on the city includes $2 billion for government-funded transport.
Projects include $700 million to be spent on setting up the Kwinana Lithium Plant project, plus an airport link from Forrestfield to the CBD.
These infrastructure projects will support the projected 953,000 people that will be added to Western Australia by 2036, taking the state’s population to 3.6 million.
More than 2.6 million of those will be living in Perth, Glossop said.
Glossop helped clients purchase a Maida Vale house in an off-market transaction for $415,000.
The property is a prime example of an investment with good cashflow, as it rents for $440 per week and has had tenants living in the home for 15 years.