The Perth Housing Market is undergoing a mini Boom and the Rental Market is the tightest I have ever seen in 12 years!
In my latest intensive Perth Property Market update I give you my insights into the drastic changes happening to the Perth Sale & Rental Market, greater understanding of the demand drivers and my crystal ball predictions for the year ahead and the suggested actions to take.
Contents:
- 1:33 Sale Market Update
- 9:40 Building Grants Explained
- 12:08 Rental Market Update
- 17:46 Property Clock Timing
- 18:57 Factors Affecting Our Market
- 28:46 Impact of Residential Tenancy Act Changes
- 31:50 Rent Relief Grant Details
- 32:30 Tips to Survive & Thrive
- 36:40 My Crystal Ball
G’day its Jarrad Mahon here from Investors Edge Real Estate and I am so excited to bring you my Perth Property Market update from July, the sale market and the rental market has lead to very interesting times. I for one have been very busy with the building grants having given me lots to do with the selling of land and house and land and villas. Its been a crazy month and we have nearly seen more transaction activity than the rest of the year combined. On the rental market side things are extremely tight with conditions I have not seen for a very long time.
Let me take you into it now.
Sale Market Update
In the sale market what you will see is that we have had a very sharp turn around in the number for sale since our peak in June last year with 16,633 for sale so the market did start to tighten towards the end of last year and into January and I had sent an update out saying I was selling properties first week open with 20 or 30 people turning up to home opens but when I said that it wasn’t the same everywhere. There were properties in demand in established areas where there is limited land supply of family friendly and suiting that market. That has continued on the other side of the Corona Virus shock, so we have picked up where we left off now but we have also got the building grants fueling the purchase of land and tightening the supply of properties up to 10,407 properties for sale.
Typically anything under 12,000 is our neutral point and under we start to head to a sellers market, as I have mentioned, this is not the same everywhere and established homes in outer-outer areas are still struggling and apartments are generally struggling too because people are preferring to build new and there is still and over supply of apartments in the Perth market.
You can see since January we are a further 17.1% down in the number for sale, 29% on same time last year so a massive tightening of our market and I expect that to continue to certain segments and we might as we see the market starting to improve over the next 12 months, we might see the number for sale start to increase but what actually matters is how many properties are also being sold.
Number Sold
When we look at this crazy mini boom like spike in the number getting sold per week at 1818. In all the time I have been keeping stats the previous high was 1076, 1000 odd sales per week and we have doubled that in a single week. This is not going to continue forever and its likely to start dropping off in the coming month or two as all the home buyers that can buy are buying and they are rushing to secure their builder and take advantage of the building grants that are on offer. We will touch on those again later just in case you have been living under a rock and I will explain some of the details that might have been lost on people when they originally came out.
So you can see a massive 121% compared to Jan 20 and 153% compared to July, increase in the number of properties being sold per week.
Median House Price
You can see here our median house price has started to flatten off at $480,000 and these stats only run to the March quarter and I have been waiting for the June stats to come out. I would expect we will start to see a spike in the median house price, again for how long, we will need to see but I will give you my Crystal Ball at the end of this.
Median Unit Price
You can see that seems to be bottoming at $380,000 and that is good because we are getting a bottoming of prices.
Median Land Price
I have included this for the first time, because that is where the majority of the market is buying at the moment. Even to March we were starting to get some price come back for land and you can imagine what the June and Sept quarter are going to show, a big spike in the Median house price is expected for those quarters. It will also be interesting to see where the majority of the action is, remember median price is where half the homes are selling above and half are selling so it shows at what price the buyer demand is purchasing but it is indicative of capital growth.
I know myself I had land for sale that has been listed a while with owners not wanting to reduce price further and over night we have gone to selling it and over night land developers have gone to not offering the $10,000 to $20,000 rebates any more and they have all disappeared. You can certainly argue that 10-15% is eaten up straight away and builders who were offering amazing incentives to build just a few months ago are now crazy busy and have removed the offerings. So it doesn’t take long for the previous value in buying that was there to not be there any more. Its just a case of supply and demand, the grant does get eaten up in a true value sense but it does help people get into properties that have not been able to and lets hope the rest of the market can support that moving forward and not create a train crash in the next year or two especially in these areas that people are building in. I am thinking ahead to what distortion these grants are having on our market, more on that soon… I can get carried away. Back to our slides 🙂
Average Selling Days
You can see the average selling days is at 45 days now and we were tighter across December quarter with 28 days going up to 45 days but I imagine this is going to be dropping to below 40 days and potentially below 30 days in this very tight market.
State Government Construction Grant
So what did this cover and what is some of the detail around it?… it was for $20,000 for eligible applicants who enter into a contract to build a new home or enter into an off the plan contract to purchase a new home. Basically for single tier not apartments, villas and townhouses will be applicable also I think. The contract must be entered into between June and 31st December and there are some other conditions. The state government grant is a lot more open it is not means tested and it is available to investors and home buyers so a good option if you were thinking of buying new.
The Federal Home Builder Grant
As quite a few more conditions to it. See below. The two of them combined if you qualify for would give you $45,000 and first home buyers would receive a further $10,000 and no transfer duty up to certain purchase amount so you could be saving $65,000 as a first home buyer, crazy levels! Again the contract dates between June and 31st December and some income caps with property value cant exceed $750,000. So hopefully the two of them are going to help a lot of people into a home.
Perth Rental Market
Boy oh Boy we have never seen anything like what is happening now in the 12 years that I have owned my agency. We are property management specialists across Perth were we manage 680 properties and we normally have 40-45 properties for rent at any one time and at the moment we have just 6 for rent. So that is really hurting our revenue and we are certainly affected as a business by not having the same level of activity but it is pretty great for our landlords who don’t have tenants vacating.
We still have the moratorium in place where we cant increase rental prices to existing tenants that ends on the 1st of October and as you will see in a minute rents are definitely increasing and when we have to find a new tenant we are getting in many cases 10-15% more for rent and even in the outer areas rents are increasing too. Take Alkimos which was one of the most affected areas in Perth, we have villas out there that were getting $260pw that are now getting $290-300pw and we are seeing similar increases to the rest of Perth. Now the only area that is not increasing, is the CBD and East/West Perth because a lot of the airbnb apartments are coming back on to the the long term rental market because we dont have the tourists and transient visitors to Perth at the moment. ‘There is a serious over supply in those areas which are taking long to rent, are not increasing in prices but everywhere else in Perth that doesn’t have that type of rental is increasing.
Number for Rent
You can see this is tightening up drastically and we are now at 3963 on par with levels of 2013 when we saw very sharp increases so that is ahead for us over the next 6 months and increase in rents. Over 6 months had a 35% decrease in the number for rent and last year a 45% decrease. So why is that happening you might be asking, the reason is we have not necessarily got new migrants but there is still a lot of people that do start out renting but the main reason is we have not had any investors buying to bring new rental properties on and the existing tenants with fears around COVID have been staying put and there is no other supply on market. The few people that are still coming into the state are renting first and very few new rentals so its just tightened up.
Rental Vacancy Rate
You can see that has tightened up to 2.2% for the March quarter so its going to definitely be below that in the June quarter, and our vacancy rate is just 0.15% which is well below the Perth average so we are running an extremely tight portfolio with actually only 1 property vacant out of 680 at the moment. Just one! So we are obviously working really hard for that person to find them a tenant at the moment marketing it well and showing it after hours.
Average Rental Price
You can see the March quarter is now at $375pw and I expect it to be higher in June quarter. It is 4.2% up on 6 months ago and we have a long way to go to get back to $480pw where we where at previously but its going to come back somewhat over next 6-12 months. You can see our portfolios average rent is $351pw so we are still needing to increase that as soon as we get out of the moratorium we will be passing on rental increases in line with the market rates to our tenants.
Property Clock
No major changes here. No big surprises.
South West WA has been moved around to its bottom but it can be quite fickle whether it stays there or moves back around or continues to recover. Perth is still in the bottom of its market and I would agree with that as an overall statement, even though we are in a mini boom, its not around into proper recovery yet and this is stimulated by the building grants and not having many sales across COVID many buyers have built up and we are needing to get back to some normality which might move us around into recovery. But what is more likely is a lull in certain segments.
Units are still around in a declining market so I definitely agree with that.
Factors Affecting Our Market
I really want to take you through them.
Availability of Finance
With the availability of finance since my last update, rates are unchanged. People are predicting 5-10 years of the low rates that we have now. Banks are fighting hard to keep customers and you should not be paying more than 3% unless you are at a higher loan to value ratio or locked in some previous interest rates so you certainly want to get below 3.2% and every investor I am speaking to I tell its worth asking the question even if you stay with your existing lender, give them a call and see if there is a better interest rate they can offer you. I myself have been able to get better interest rate savings, its definitely worth asking the question if you have not done so over the last 6 months.
Mortgages put on hold are starting to come off hold at end of September, hopefully those people have gotten their jobs back. Will extensions be granted further? We will have to see so that is in part we have not seen any forced selling or the bottom fall out of our market with any forced selling giving us time to recover. I imagine the banks are going to be reasonable and no one wants to foreclose on owners it doesn’t work well for anyone so make sure you speak to your bank if you are affected.
Building Approvals
You can see that this is till May 2020 before we have seen any impacts of the building grants, so these are going to be going through the absolute roof over the next 6 months. You can see we were slowly starting to tread back to more neutral ground with WA down 8.5% over the last year and that is certainly going to be going up.
One thing no one seems to be talking about is how difficult this is for the builders. On one hand you might say how great it is for them to be getting all this business and benefiting, but the flip side of that is they have had to go from having skeleton staff and teams to now having to deliver on hundreds or thousands of clients all within a short period of time so its hardly fair on them but in these times we need to make hay while the sun shines and do our best to deliver.
Employment
Now taking a look at the employment data that we have on hand, this is to Jun 2020 so we have not seen the worst of it to come through but we are capturing some of the affects of COVID. We can see here that WA is at 8.7% unemployment, not to worry as they are all looking pretty bad and again what is the true rate because job keeper is propping a lot of employees up in their jobs and would be a lot worse if it was not supporting things. So hopefully as businesses get back on their feet and the government is also throwing stimulus at projects to get things started we will not see this escalate in the September quarter by too much. Worth keeping an eye on and seeing where we end up and its going to have a huge affect on the economy and it probably the number 1 thing the government cares about.
Population Growth
When we look at this its unchanged since my last update, they only release the figures once a year. We will need to wait to see how all this washes out and when they open up the borders again. You will see from my predictions, that getting migration back on track is going to be absolutely key to all the states and WA to keep the economy going, the sale and rental markets going. We were getting back to 1% growth per year after having a fair dip, we really need to be back to 2-3% to see our recovery happen with a sustainable level of demand so lets keep an eye on the borders.
Policy Changes & Impacts
Now we cover some pretty interesting stuff that you may have seen on headlines and giving you my insights into it.
Hong Kong Migrants Boost
Relating to needing to encourage migration and capture as much from SE Asia and India moving forward there has been a stance by the Government taken this week to not extradite people to Hong Kong and create a path to permanent residency and this is in response to some of the laws the Chinese government are passing which are pretty crazy and this is likely to affect 10,000 people over the next 5 years I think. So if we can have these people become permanent residents that is going to be really great for everyone and we need to look at how we try to encourage migration as much as possible we do need skilled labor especially with our aging population we are in a unique position in the world were a lot of the other populations are going to go backwards, we are able to prop up our population.
Job Keeper Extended
Now Job Keeper has been extended a further 6 months to the end of March and there will be businesses that are back on their feet and phased out, this is for those that are still affected. We are also seeing a lot more targeted stimulus to where its needed most. They have certainly declared openly that they have Australia’s back and they are putting everything on the line including throwing out the kitchen sink to make that happen. I have seen the stats that we have one of the highest stimulus of all the G20 countries so we are not leaving anything to chance in getting through this.
2.7 Billion Withdrawn from Superannuation
You can see the stats that 2.7 Million Australians have withdrawn their superannuation, I was blown away! You could get $10,000 out last financial year and $10,000 out this financial year for a total of $20,000. A total of $30 Billion has been withdrawn from Super which might sound like a lot but its only 1% of total savings but you wonder what people are doing with it. Paying off their house, putting it in savings or in the economy and hopefully making best use of it.
Train Station Locations Finalised
Giving a lot of certainty to these locations- Morley Station other side of Reid Hwy, Noranda Station, Malaga Station, Whiteman Park will be great to link in there, Bennett Springs not confirmed yet and Ellenbrook Station. Great that those are going ahead there.
Impact of Residential Tenancy Act Changes
Well we were initially very worried we were going to have a lot of tenants unable to pay their rent and its a very difficult time not being able to evict either but thankfully all of our tenants have approached things with a very level head and have been wonderful and thankfully our total level of rent arrears has stayed the same at its very low rate and I am thankful and grateful for how everyone has gone about things and no one wants to be behind in rent and there is a great amount of government support and assistance available so if you do happen to get affected make sure you reach out to us quickly if you are one of our tenants so we can help you get the support. We have had a few challengers with tenants being able to end their lease with just 21 days notice, initially we had quite a few tenants move out, not a huge amount but it was those that were more seriously affected that had an option perhaps to move in with parents or in with someone else they did move out initially.
The big one to note is we have not been able to increase rents on existing tenancy and I actually think this is going to back fire for the state government as what this has done is not allowed things to adjust and on the other end of this period we are going to have to pass on larger rent increases because the market is really going up quite substantially by 10-15% in most areas so we will be giving notice to the majority of our tenants that have not had a rent increase yet, those that are due for them will be getting notice for that to apply from the 1st October when we get to the other side of this. Keep in mind that as a tenant you have had a good run with rents reducing over the last 5 years and everything does move in cycles and you are better off paying that to your current property property rather than having to move to pay the same amount elsewhere, its a fact of renting that things do go in cycles and its coming back around.
So landlords who have suspended non urgent maintenance it has to be done after 1st October, but thankfully the vast majority of our owners have been keeping up with that.
$2000 Rent Relief Grant
Initially I thought this is going to be wonderful and help a lot of people but the reality is that you have to have fully lost your job, you cant be on job keeper, you can be on job seeker and there is a number of other means tests with less than $10,000 in household savings and some other criteria. What that has meant is that very few of our tenants have actually qualified for it or actually needed it. So that is there if you happen to fall into this category over next couple of months.
Tips to Survive & Thrive
Actions to Consider
Now I have a number of actions worth considering depending on where you are at.
Using a Building Grant
If you are looking to buy a property it is worth considering a new off the plan or land to build on, I would certainly not be looking at outer areas, I would be keeping to infill areas that have high demand because I am a bit worried about where we are going to be in the next 6-12 months time in these outer areas after everything has been built. I would be keeping to villas, townhouses or houses and stay away from apartments they are behind the rest of the market and there is generally an over supply of apartments. You can receive the $20,000 grant as an investor if you are building or potentially $45,000 if you are home buyer and its a good idea if you are looking to invest to hold the property to rent out and have a much higher depreciation it could be a good strategy to buy in an infill area for tenancy and future resale.
Buying a Development Site
If you are looking at buying a development site I am cautious about the chance of you being able to do that successfully if you don’t have a pretty big margin in it, I would be looking for at least a 20% margin on total expenses because there is going to be a lull in land and selling of newer properties. If you are developing something to keep and rent out I would feel better about that but if you are developing to sell you really want to be stress testing this because in 12-18 months time the condition could not yet be favorable for those sales. So I am saying to people hey if you do see a development site that you want to buy now you could perhaps sit on it, we can find tenants readily and the plan could be to buy now when we are at our bottom and look to develop when we are clearer on end outcomes.
Selling a Property
If you are considering the sale of a property, I am selling all over inner Perth metro up to Joondalup and as far south as Cockburn. I am selling a lot of properties at the moment, I am extremely busy as well as selling land. If you are going to think of selling now is a great time to do it because there will be a potential lull on the other side of things for 6-12 months. So in my mind if you are going to sell look at doing it now or wait it out for 2-3 years for the upside. Now of course if you own a family home in a popular area, its a great time to upgrade and there is isn’t many listing to choose from, it might mean selling your property and renting for 6 months or having a longer settlement period with your sale.
Me and my wife are looking at some of the inner areas so there are very few properties (for sale) at the moment so it does make it very hard to find something. Its great again if you could consider renting out your place and giving yourself the time to look for something to buy and then selling when the market comes back in 2-3 years if not selling now. Feel free to get in touch for a specific appraisal on your property because it is very property type and area dependent and I am only too able to help you.
My Crystal Ball
What is ahead?
Rents are likely to increase 15-20% over the next 12 months before some easing of pressure when tenants move into their newly built homes. Builders are already extremely busy pushing up prices and causing delays and there is going to be potentially long delays for people to get their property built. I am actually hoping builders take longer not shorter because that will give time for the overall market to recover a bit more and for the population growth to be back before we start to have our tenants move out, some of them anyway.
There is definitely some businesses that were struggling before COVID that will not come back from this. So its a real cleaning house of the economy and markets and I feel horrible for any business owner that has to go through that but it is just part of the cycles that happen.
There is going to be a lull of land and new home sales from January or potentially sooner, so we could get another month or two in and the majority of buyers who are going to buy will probably have entered the market toward the end of this year if you are going to sell.
Established homes in outer areas are likely to be negatively affected, over the next 6-12 months because people will go to buying new out there instead and there is going to be a lot coming on that are built out there new so potentially an over supply in the re-sale market as well.
You will see that price will continue to rise in the in demand areas– that’s the inner, coastal, well established areas that don’t have ongoing land supply. We are going to get a real 2 speed market going on where the outer areas that have had all this land supply and new building will struggle even more so because they were struggling before and these inner areas and those that suit families are going to move around into their recovery phase and continue to grow and be in demand so that is very clear to me that is going to happen.
(Note: These would also make great location for purchasing and investment and is where I would look to buy)
Its essential for us to get out population growth in WA back on track before the stimulus and loan honeymoon extension periods start to end, the good news is that I think migrants are going to be very drawn to work in Australia’s relatively robust economy and low COVID-19 instances so we are going to be seen as a real safe haven and there is going to be a battle among the states for their share of the immigrants. We need to be putting out best foot forward with education leading the way, and having more of a role and make out state the go to for jobs, affordability and education and if we can do that we will succeed in having our recovery in the next 2-3 years or sooner. The government needs to make migration easier and promote it.
I have definitely noticed the economic commentators talking about the slow down of China and the US and its very likely to be the case and they cant keep in their bubbles indefinitely, will they have a proper correction in the next 6 months, I don’t know but what I do know is that SE Asia and India are going to be the next places for a world boom and Perth is ideally located to capitalise and also have the skilled labor migrants come, they will want our resources and the transition from us being dependent on China and following the US economy to these other areas in SE Asia and India is not going to happen over night and it is going to take some time and focus of us re-aligning to them but the future is very bright for Perth.
I think it is still a great time to look at taking opportunities to upgrade your home and for selectively buying investment properties, so get in touch if you need help with either.
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