Knowledge Hub

Written by Matthew Hughes

Have investors missed the boat in Perth? This is a question I am being asked more frequently lately, so I thought I would address it in this month’s market update…

National Market Update

Post-pandemic, the national property market has experienced a period of strong growth, driven by low interest rates, a strong economy, an increased demand for housing, and a lack of construction activity across all states and territories. More recently though, this rate of growth has slowed considerably. According to CoreLogic, the national median house price has risen 7.6% over the past 12 months, with Sydney slowing to 0.3% in July and Melbourne falling into negative territory, down 0.4% in the same month.

As always, the national market is comprised of markets within markets, and some continue to outperform – Perth and Adelaide have continued their blistering pace of growth, while Brisbane’s solid pace of growth has finally begun to show signs of tempering.

As the national landscape continues to evolve, savvy investors have continued their love affair with Perth, along with a smaller group still content with Adelaide, and others now trending into areas like regional Queensland. Other, capital city markets hold little promise for investors at the moment, with affordability issues a strong deterrent for investors in Sydney. There is an increasing amount of chatter about Victoria being the next market to attract national investor attention, and for good reason – although we see no reason to rush over there just yet, as the market continues to soften in the face of an investor exodus caused by poor governance and the introduction of new tax policies, unfairly targeting landlords.

Despite this, we do see opportunity bubbling, and our National Investment Advisory Committee is hard at work right now, identifying areas in metro and regional Victoria that we feel will present value and potential for outperformance in the future, with our acquisitions team expecting to be active on the ground here in 2025.

So, is it too late to capitalise on the Perth market in 2024?

CommSec’s State of the State’s report has WA ranked first in relative economic growth. It also leads the nation in population growth, construction work, and housing finance growth. WA is also second in annual jobs growth and equipment investment. It must be noted that there has been a significant fall in the iron-ore price recently; however, we feel the Perth market is far less susceptible to this single indicator now, than it has been in previous economic and property cycles – especially given the overall strength in the property market fundamentals.

Historically Perth has often run counter-cyclical to the East Coast – sometimes to our benefit and sometimes to our detriment when it comes to the impact of macro-prudential lending policies. The Australian Prudential Regulation Authority (APRA) are charged with the creation and implementation of these policies, and they tend to react to what is happening in the larger markets in Sydney, Melbourne, and to a lesser extent, Brisbane – creating a “one size fits all” policy for the entire nation.

The last time changes in APRA policies impacted Perth was in the latter part of our most recent downturn, and they were introduced to pour water on excessive lending to speculative investors in booming East Coast markets. This delayed the impending Perth market recovery and resulted in an elongated period of falling prices – around 17% in total from 2014 to late 2019.

Now we are faced with the high likelihood of falling interest rates in the short term, coupled with the possibility that APRA may soften their policies, potentially reducing the excessive serviceability buffers that are currently in place that limit the borrowing capacity of all buyers, especially investors with multiple property portfolios.

Perth is still undervalued in our view – despite nearly 25% growth in the past 12 months, we have come off such a low base, that we are still one of the most affordable markets in Australia. Yields are some of the best on offer in the country – despite a recent uptick in rental stock, our vacancy rate still languishes down at 0.6%. Listings remain historically low, demand and population growth are both still high, and even though we have seen a welcome increase in new dwellings start statistics from the ABS, it is not nearly enough to satisfy current and future housing demand.

All things considered, we believe that upward pressure on Perth prices will remain for some time, and the opportunity for investors therefore also remains. If we do see a drop in rates this will no doubt further bolster investor confidence – and if we see a softening in lending policies from APRA, they may be pouring fuel on the Perth market this time around, rather than water.

If you are considering your next move and would like a review of your current portfolio, finances or to just discuss the market or your future plans – click HERE to schedule a complimentary Strategic Planning Consultation with an adviser today.