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The year is coming to a close but there’s no stopping the upward spiral that the Perth property market is seeing for the last 18 months.
Does the lockdown have a negative impact on Perth and Western Australia in general? What does 2021 look like according to the RBA and ANZ?
Find out in Perth Property Insider’s inaugural episode as I serve you the latest and hottest updates in the Perth property market fresh from the oven. As the year closes, let’s brace ourselves for some exciting news as I cover the current median house price, rental vacancy rates in the CBD and the suburbs, unemployment rate insights, and more!
Hop into this gripping episode of the Perth Property Insider. Tune in now!
- There’s no stopping the Perth Property Market [01:42]
- A significant increase in properties sold over the last 18 months [03:24]
- Current median prices in the Perth property market [04:53]
- A sharp drop in the average selling time of properties [08:10]
- The status of government construction grants [08:50]
- 47% decrease in properties for rent [10:27]
- Rental vacancy rates are currently at 0.9% in the CBD [11:49]
- Timing the Australian property market [13:24]
- Perth is in a declining market [15:18]
- 2021 predictions by market experts and the RBA [15:57]
- Unemployment rate insights for the next two years [18:02]
- The effect of lockdown on population growth and migration [19:25]
- Changes in the residential property market in 2020 [21:40]
- How the availability of finance affects the Australian property market [23:38]
- Biden’s 100-day plans and policy changes [26:23]
- Latest updates in Western Australia [28:21]
- Tips and tactics to thrive as this year ends and a new one begins [30:24]
- My crystal ball for the next 6-12 months [31:49]
See Transcription & Graphs:
G’day and welcome to the very first episode of Perth Property Insider. I’m your host, Jarrad Mahon, and on a weekly basis I’m going to be bringing you my insights into the Perth property market, as well as the mindset and strategies to succeed at growing your wealth and improving your life. And I’m not just going to be doing it alone, I’m going to be bring you along a lot of the experts that I know and we’re all looking forward to sharing our experiences with you.
What better place to start than with a Perth Property Market Update, and today I’m going to go deep into the sale market, the rental market, and I’m bringing in the predictions from both ANZ and RBA on what you can expect for the year ahead. It’s all very exciting so let’s go inside.
Welcome to Perth Property Insider, where you will learn how to grow your wealth and improve your life using Perth property. Our show is brought to you by Investors Edge Real Estate, the highly-rated and award-winning property management specialists servicing the whole of Perth. Now here’s your host, Jarrad Mahon.
Good day, Jarrad Mahon here and I’m really excited today to be bringing you my latest Perth Property Market Update, where I’ll be going deep into the sale market, into the rental market, the different factors at play on the ground that we’re seeing happening in our portfolio of over 700 properties around Perth, and I’m also going to be covering off ANZ’s predictions as well as the RBA’s predictions and then I’m going to wrap it all together in a crystal ball for you as to what’s going to happen over the next year, so we’ve got a lot to be excited about.
Perth Sale Market
Number for Sale
Compared to the last three or four years the Perth market has definitely turned around into recovery and I’ve titled today’s market update Don’t Stop Me Now, cue the Queen song, that’s very much how the sentiment is. Things are really underway, the momentum is gathering and we’re all thinking that it’s almost too good to be true. Let me take you firstly into the sale market numbers. We’ve seen a continual decline in the number of properties for sale. We hit our peak in June last year, 2019 at 16,600 odd properties for sale and we’re now down to just 10,000 properties for sale and that has continued in a very sharp trend downwards.
We’re 38% down on last year at the same time and that limited stock in the market is really not giving many buyers much choice. And when a quality property does come on the market we’re finding that especially in the family-friendly areas and those that are good locations with good schools and amenities where you don’t have lots of land coming on to disrupt things as we’ve seen with the building grants, but in those quality areas properties are very readily selling at first time open at the moment and they’re selling well and above asking price. I myself have been looking intensely for the last two to three months for a family home to buy and we’ve missed out a couple of times and boy, I wish I could go back and buy the one I saw on my first week looking, but things are really heating up out there.
When we look at the number of properties that are getting sold each week we’ve seen a steady increase over the last, well, 18 months now of trending upwards. We had a massive spike in July at 1300 odd sales a week, and they were predominantly all the land that was getting sold and first-time buyers predominantly taking up the building grants and that those building grant sales, those land sales all came in the space of four to six weeks and they’ve dropped off rapidly now.
I sold 12 odd lots in a month and I’ve now any lots that are left, we’re now struggling to get inquiry on and it really seems that the majority of buyers that were going to take that building grant up have done and builders are also now struggling to issue a building contract before the end of the year so we’ve really done the dash on that. And weekly sales have been strong throughout spring and have continued to trend up and we’re now sitting at approximately 900 sales a week, and that’s continuing to drive the supply of properties down. And to give you an idea that’s over 38% higher in the number of sales per week than we were experiencing last year at the same time. So really looking strong both on the limiting supply and increasing demand.
Median House Price
Now, when we check in on the median house price, this is always the factor that take the longest to show up the changes so I consider the supply and the demand as leading indicators, as well as the average selling time as a leading indicator and then we look to price to see when that shows up. And keep in mind that even when a property is sold it takes six to eight weeks to settle and that data is always trailing the market too. When we to look at the median it’s a mid-point where half the homes are selling higher and half the homes are selling lower.
And what we’re seeing in Perth is that the top end of properties in the Western suburbs, the coastal, the family-friendly quality properties, they’re the ones where the majority of the heat and the action is. We’re still seeing good activity in the middle to outer areas but they’re certainly not as hot yet and then the far out areas some of those suburbs arguably would still be decreasing in price. And as they’re starting to find buyers coming back to them they’re having to still sell below what agents are thinking in order to sell them and meet the market.
We’ve leveled out our price at approximately $475,000 as our median house price. Dare say that’ll be our bottom because everything I’m seeing is suggesting that we’re going to be coming up in the median in the coming months ahead, certainly already seeing five to 10% increases in prices in these Western suburbs and quality in areas and we’d be seeing three to five per cent in some of the middle rung areas where a property is in demand. So keep an eye on that median price.
Median Unit Price
And when we look at the units, that’s had a steeper fall in Perth and it’s now at approximately 370 and that may have a little bit more to gradually fall because the unit market seems to have been affected most by not having tourism, by not having the immigrants, they usually gravitate towards the units initially. And many of the Airbnb properties on the rental side have been converted over to traditional rent and so that market’s a lot softer and the unit market in Perth traditionally trails 12 to 18 months behind the sale market, that’s going to take a bit more time to turn around.
Median Land Price
And when we look at the lands median land price that has had a solid jump from 235 over the last 12 to 14 months and that’s just an indication that land certainly did have its run with the building grants. But you can see that when we put the typical house price on of 250,000 we’re ending up very close to the median price for houses and I expect that the land is going to taper off at least for the next six to 12 months in its median because it couldn’t continue at the rate that it was, that’s for sure.
Average Selling time
And then when we look at average selling time on market this really gives me a good leading indicator guide as to what’s happening on the ground. And you can see that for the Perth average selling time or median selling time we’re at 30 days now. That’s very quick, that means that there’s still half the properties selling faster than that. The first and second week on market and half selling in five to six weeks on market but that’s a very sharp decrease and boy, oh boy, if I see that go under 30 days, can it get any harder? I’m not sure, so why don’t say I?
Now, what’s happening with the construction grants as we finish off the year? I mentioned earlier that there’s not very many buyers left. They all rushed in over one to two month period. We’re nearly going, going, gone with the chance for someone to use the 45,000 of government grants available so that they have to have their building contracts signed by the 31st of December. And then there was an extension to the conditions around the grants, the builder just has to commence on site at some point next year. Now, heaven forbid if you build it can’t get out to site within a year, if you are signing up this late in the game, you really need to be going deeper with your builder and getting some reassurances on the timeframes and really checking if they’ve got the capacity to deliver and when. So make sure you look into that if you are engaging a builder now.
Buyers have definitely dried up and where it’s already seeing significant delays from builders and all the trades and services that they use in order to deliver. So this is immediately overnight scene, brick layers, all kinds of trades become very hard to get and I’m just very thankful that with our rent roll we’ve got stable trades that are very loyal to us and we’re still able to readily get work done at the same pace. But any mum and dad that wants to get some work done on their house it’s going to be very difficult to get a trade to do anything, let alone quote for you at the moment.
Number for Rent
Now on the rental market, boy, oh boy, it’s hot out there. We have seen a 47% decrease in the number of properties for rent over the last six months, massive, massive decrease. We hit our peak at 11 and a half odd thousand in June 16 on the market. More recently we’ve started trending downward since December, 2017 in our supply and we’re now at just 2,864 properties for rent, that’s pretty frightening when we were previously at nearly 11,000, so a very, very tight market out there. And we’ve only got 14 properties in our portfolio for rent when we normally have somewhere between 35 and 45 properties for rent.
I’m getting I’m readily getting private messages and text messages from people trying to get my help with the rental. We are definitely happy to try to help tenants and let them know what we’ve got coming up. And it’s tough out there for tenants, it really is. If you want to move you can’t find somewhere so I never wanted things to become this crazy, but we’re trying to help people where we can and we are looking forward to the moratorium lifting in March and some more investors coming into our market to bring quality of rental properties for them to choose from.
Rental Vacancy Rate
Rental vacancy rate accordingly that has also dropped significantly. We hit 7.6% in October 17 as our peak. Now that is massive that’s why our prices dropped 22% over that time and then it started to tighten up and we’re now at just 0.9%. So traditionally anything less than 3% will see upward pressure on prices and
Median House Rent
What we’re typically seeing on the average rental when we look at the median house rent, we’ve gone from 350 per week at our bottom where we sat and ever since January last year we’ve slowly been increasing but more recently we’ve been more rapidly increasing, we’ve now hit $390 per week, that’s $350 to $390, an 8% increase, that’s the median.
We’ve certainly seen higher increases in some suburbs. We’re seeing about 10% on average and we’re seeing 15 to 20% in some areas for some property types and that’s generally the family-friendly good schools well-located properties. And the unit units are not doing as well but it depends where they are. The CBD has not struggled with the Airbnb properties coming back to the long-term tenant pool but that supply is now being taken up and it’s returning to a more stable market there and you’ll find that some of the units in the popular cafe strips have done very well about that unit trend.
Houses Property Clock
Property clock timing. Let’s have a bit of a look around the states as to what’s been happening. We can see that Perth is still labelled as being in start of recovery, that actually changed two months ago, odd when I came last came to you with an update and our Southwest has also moved around into starting of recovery. You can see that Sydney has adjusted this month to now being labelled as approaching the bottom of its market, Melbourne a declining market and Brisbane is a bit further ahead than Perth, both Brisbane and Adelaide. Brisbane is in start of recovery but Adelaide is in a rising market, Gold Coast in there as a rising market as well.
I did want to touch on the typical time periods that we might see. People think that a city stays in a stage of the cycle for even amounts of time. Looking back in the past that is definitely not the case. What I expect to see for Perth from here is two to three years of pretty rapid increase and then we’ll start to taper off as we move into the fourth and fifth year. This is just predictions based on past timings and then we’ll have a bit of a down period as we come towards our seventh to ninth odd year. That’s what I typically expect and the best gains are always made by the people that probably bought six, 12 months ago but it’s certainly plenty of upside if you’re looking to buy in Perth now. And when we look at what’s ahead we’re only really just starting our recovery.
Unit Property Clock
Now, national property clock for units, you can see that Perth is still labeled around in a declining market and we’ve got Gold Coast around in a rising market, Adelaide rising market, sorry, Gold Coast is starting its recovery. We can see that the Sydney market and the Melbourne market are also in a declining market stage as well. Units are certainly not looking as favorable in all the main capital cities as compared to houses except for Adelaide’s units seem to be holding up quite well.
Now, let’s start going into a few of the predictions made by some of the reputable organizations. I’m just rethinking whether how reputable the banks are, but yes they are. ANZ’s predictions next year, we expect price gains averaging 9% across the capital cities. And when we drill down in that they’re expecting 12% for Perth to be the highest gains of any of the capital cities, nine and a half percent for Brisbane, 9.4 for Hobart, 8.8 for Sydney and 7.8 for Melbourne. Very optimistic all round for all the capitals and Perth being predicted to be the highest of all of them, 12% I’d definitely expect that if not more from what I’m seeing.
Factors Affecting Demand
I spent a long time reading through all the Reserve Bank of Australia’s meeting minutes because they happen to released a lot of insights this month as well as their predictions. I really wanted to share them with you and the exciting news from what they’re saying is that the near-term outlook has significantly improved so they’ve increased their growth projection in gross domestic product from 4% which they gave three months ago to now being at 6% to the year ahead to June, 2021. That’s a pretty big jump when you consider a third increase in what they’re expecting. And they’re also predicting it’ll take until the end of 2021 for us to reach the level of output that we had when we were going into this pandemic. So still a bit of recovery ahead or expecting that we need to all of next year to get back to those levels.
Now, some of the more sobering news was that on the unemployment side they’re a bit worried in the medium term. We face the prospect of a long period of higher unemployment and the unemployment rate is predicted to still be around 6% by the end of 2022. When we went into this we had the low 5% for unemployment and it was still not going to be back to that, according to the predictions. That’s why they’re moving as well as the government to start making even greater stimulus, even greater support for jobs and the economy to see that we can better these figures and this was just their base case that gives them an idea for where we’re headed. This would see wages growth slow to 2% and inflation to 1% they mentioned. For those of you that are subscribing to my property investor updates you can see all of the graphs that we’ve mentioned and you can also subscribe at investorsedge.com.au/join. Check that out and you can receive insights straight to your inbox where you’ll also get the graphs and other things that I’m referring to.
Continuing on with their insights, population growth over the last two decades we’ve been at an annual rate of one and a half percent on average. And to give you an idea what closing of these borders is doing to us they’re expecting to have just 0.2% compared to the normal one and a half percent over the next year. That’s obviously going to have some implications and that’s going to be the lowest predicted rate of growth since 1916 when all the Australians left for the First World War. So pretty significant event, and to close the borders it does have wider-arching ramifications. But it does remain really hard to predict when the borders are going to open again and when they do what sort of rate of arrivals they’ll be.
And predominantly Sydney and Melbourne are going to be most effected by the closing of the borders. Perth, hasn’t been as reliant on overseas migration. Typically, people would go into Sydney and Melbourne and then migrate from those capitals across to other places like Brisbane and Perth. And so what we’re already starting to see is anecdotally much higher rates of migration coming across to our lovely state. And because we’re seen as a relative safe haven, we’ve got great affordability and great prospects for jobs so we’re seeing a lot of even Melbourne and Sydney people making that move across now.
And I’ve heard from a number of agents that properties have been selling sight unseen $50,000 to $70,000 above asking price to interstate people that have viewed them. When I say site unseen they’ve done a virtual tour over FaceTime and checked them out that way and not wanting to miss out or wanting to make the move over and have been offering over and above many of the locals. So watch out local home buyers, we’ve got the East coasters to contend with.
What were the RBA’s insights into the residential property market? They’re saying our biggest cities have been more effected by the slowdown in population growth which I just mentioned, and they’re expecting their predictions for prices, funnily enough for Sydney was to be 5% down over the next year and Melbourne down by approximately 10%. So a bit of a contrast to ANZ there. And within the capital cities the markets are performing very differently for houses compared to apartments.
A lot of people are making the switch and move in preferably into houses, I guess, with a lot of the remote working being more accepted there isn’t that need to be in the CBD as much and people are wanting their space and not wanting to all be living on top of each other. So rents for houses have been generally rising in Sydney and Melbourne as well and the apartment market has been a lot more effected by the lower population. And I mentioned earlier that people often come when they’re foreign students and young adults starting out and probably choosing to stay at home with their parents.
Today they’re have also noted that the demand from investors in the residential property market has been subdued and it’s possible that with low interest rates and the more optimistic outlook that this is going to change. The real change that could come for Perth is things have been predominantly driven by home buyers upgrading at the moment but if the investors join the mix and they already are, we’re going to see a whole new segment of demand that’s going to start pushing the middle rung and the lower end areas up in price as well.
Availability of finance
Now, it’s always important to understand what’s happening in the finance space because this liquidity of money enables more people to either buy properties or less people to buy properties. And you would have noticed that in the first week of November we had another rate drop so that’s what I predicted for all of my subscribers a couple of months ago and the RBA did follow through on that. And of course, it’s very much in my opinion tied into enabling the government to finance their borrowing at a much lower rate and they’ve just issued a government bond purchase program of over $100 billion over the next six months. So they’re effectively financing the government and they’ve made it cheaper for the government to borrow those funds as well as cheaper for every other borrower in Australia to borrow funds.
Definitely plenty of money sloshing around the Australian economy as a result of these things and banks are fighting hard to still keep their customers. You should ideally be paying under 3% in your loan interest so check up on that and you can fix now for 2% or lower, and just keep in mind when you fix there are some downsides you can’t offset money for the fixed portion of your loan. Make sure you chat with a finance broker and get advice to your situation before doing anything.
Now, Macquarie is forecasting five years of low interest rates and RBA has said in their minutes this month, at least three years of low interest rates. And the other thing that has happened in finance which I mentioned to our subscribers last month is we’ve seen a change to the responsible lending laws which are coming in or rather being stripped back and no longer will banks be and other lenders be prosecuted for the previous responsible lending that was put in place. They may grant loans without being required to closely assess and completely understand the consumer’s circumstances. What that really means is that they’re opening up that tap on money again and they’re going to be taking away their microscopes and not analyzing things as deeply as they have been. Thank God because they one might argue that they’ve gone over the top with how detailed they’re looking into things.
Now, what have we seen as far as policy changes and the impacts from these? You’d have to be hiding or living under a rock to not know what has been going on with the U.S. election. Biden has been called to have won the election and he’s already bringing a greater sense of calm and stability to the rest of the world. I think everyone was just whether you like Trump or don’t, I think we were all just ready for it to be over, it to be done and hopefully he doesn’t cause too much legal issue trying to appeal the election and we can just get back on with business as usual.
I’ve looked into Biden’s 100-day plan and many of the policies to see what he stands for. And he seems a lot more focused on stopping the spread of COVID-19 and bringing about a vaccine so I think that’s good and welcome change for the U.S. and he’s going to reverse many of Trump’s corporate tax cuts, who knows the implications of that. And he’s got a lot of comprehensive immigration changes and he’s basically going to allow a path to citizenship for over 11 million residents. That sounds very optimistic and interesting reforms to actually enable people to become citizens and he’s going to make the U.S. an international leader on climate change.
That’s a very different story that we’ll start seeing coming out of there with policy and it might actually help Australia get its act together on that front. It’s going to end Trump’s executive order banning travelers from some Muslim majority countries so that’s probably the right move too. Overall we’re seeing a lot more sense of stability come out of that and it’s really going to help the rest of the world get back up to speed on the other side of COVID.
WA Border Changes
Now, finally what’s going on in WA. Our border is back open to the other states just when we thought it was going to be to all state. South Australia is now not permitted again, they’ve had their minor outbreak of course, and New South Wales and Victoria are still in the low-risk category requiring a 14-day quarantine. People from the other states, ACT Northern Territory, Queensland and Tasmania can freely come in and out of the state without quarantining, that’s really great and hopefully we can keep things under control in the other states and just enable people to migrate, enable people to have interstate holidays, really looking forward to that when we can do it a lot more freely.
Residential Tenancy Act
Now, I’ve touched on in previous updates the impact of the Residential Tenancies Act changes and them being extended to the 28th of March. All the chatter and what I’m seeing is that they’re not likely to be extended. I really appreciate many of our clients getting in touch with their local ministers for parliament and getting on board the lobbying of trying to see that this is changed or not extended. I think that’s going to help the government see that it is only really a small minority of tenants, 1% odd that are affected by COVID still.
We definitely need to give support and help to them but I think it’s well overdue that we should be passing on rent increases and we’re very much looking forward to issuing those in the lead up to the 28th of March, so two months out we’ll be issuing those to tenants. Now, the rent relief grant is still available for those tenants that are affected so keep that in mind, you can get up to $2,000 if you’ve lost your job and meet a number of other criteria. If you’re one of our tenants we’ll certainly let you know about that.
Tips to Survive and Thrive
Now, tips to survive and thrive to finish off the year and the year ahead. I definitely consider upgrading your home or buying an investment property in well-located areas. Well-located areas are likely to be unaffected. There’s too much momentum in those areas that it’s going to continue to increase in price regardless of anything that happens. And as for the outer areas I’m starting to see increased buyer activity there so if you’re wanting to sell consider selling now, it all depends on what you’re planning to do and your reasons for selling. If you’ve held on this long for waiting for the market to turn and you’re at an emotional low make sure you do hold on if you don’t have a good reason to sell.
If you need the borrowing capacity out or you need them the money out or it’s costing you too much to hold make sure you revisit your interest rates and your depreciation schedules and see what we’ve got ahead for you with rental increases and try to hang on because the upside in the next two to three years is going to be great. And if you want to bargain in these outer areas, still possible, it’s still a weaker market but that window is closing so now’s the time to get into some of the outer areas if you’re in that bargain buying space.
My Crystal Ball
Now, my crystal ball for the next six to 12 months, rents are likely to increase 20 to 30% over the next 12 months before some easing in pressure when tenants move out into their newly built homes and with these increasing rental prices many more of them are going to want to get out of renting so that’s going to fill the second wave towards these established homes in the middle and outer areas so that’s what’s going to drive our property market over the next year as well. It’s going to be a real loud inland and new home sales from now on and investors have definitely started to come back to the market and we’re mainly seeing East Coast investors, not locals yet. They’re being attracted by the increasing rental yields and good prospects for growth.
Established homes in the outer areas are likely to be negatively impacted a bit for a while especially where there’s land around them. The building grants have really stirred up those areas that have the land supply so people have obviously all opted in for a package instead of an established there. And we’ll see prices continue to arise in the well-located areas, definitely we’ve got too much momentum now, wherever the good schools are that are well-established that don’t have land supply we’re going to see them increasing. And I am already seeing that immigrants from interstate, so immigrants from interstate is going to be a big part of the successful recovery of WA. I think when our international borders open up surely we’d be the number one choice for many as well. I think that’s going to support our continued recovery and continue to keep pressure on prices when that happens.
Thank you for joining me for my Perth Property Market Update. Make sure that you head along to our website at investorsedge.com.au/join and subscribe for future updates.
About Our Host:
Managing Director and Licensee at Investor’s Edge Real Estate for more than 12 years, Jarrad Mahon is a household name in the real estate industry. Having received 16 awards over the last six years, he is your go-to guy in property management and investment strategies. He has been featured in multiple media outlets and is continuing to make great strides in the world of real estate investing.
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