Article by: Craig Francis, Journalist
Source: API Magazine
March 11, 2021
Soaring sales activity and rising prices are likely to be features of Western Australian property markets for the next several years, according to a pair of prominent property pundits.
CoreLogic research director Tim Lawless recently teamed up with founder of the Hegney Property Group and prominent Perth analyst and commentator Gavin Hegney as the keynote speakers at the Australia-Israel Chamber of Commerce’s annual Property Event of the Year, held at Perth Convention and Exhibition Centre.
Mr Hegney opened the event by delineating the difference between the market of 2014, when prices were rivalling Sydney’s as the highest in the country, to today when prices are lifting from 20 per cent falls in the metropolitan area and even larger declines in regional markets.
While houses are now outperforming units, the duo agreed that the current spike in sales activity and prices was set to entrench itself for a couple of years of solid growth in almost all Western Australian market sectors.
“WA is clearly outperforming the rest of the country economically on the back of strong commodity prices and government spending, and housing values are now coming out of a spectacular and sustained downturn,” Mr Lawless said, addressing the crowd remotely from New South Wales.
“But what we can see now is quite clearly that Perth is leading the nation in capital gains and what’s driving that growth is partly low interest rates but also a bunch of other factors.
“For starters, you’ve got a very affordable market, which is why first home buyers are taking advantage of super low rates, but we’ve also seen a surge in buyer activity while there’s very little stock.
“It’s not that there’s fewer new homes being added to the market but more about absorption – there’s more buyers coming in at a time of low stock and that’s creating some urgency, or FOMO (fear of missing out), which is definitely a thing again.”
Buyers are now entering the market at what are essentially 2006-07 prices, with wages having grown, albeit slowly, to 2021 levels.
The emergence from a cowering COVID economy to a vibrant vaccinated version will only add to the Perth market’s move from a sentiment of hope and optimism to one of excitement and euphoria.
With Perth not experiencing the same densification as Australia’s larger cities, the price recovery has so far focused on houses.
“With a pervasive shift away from density living (due to the pandemic), in the past year we’ve seen house prices rise 5 per cent, compared to units at about 1.9 per cent in Perth, where there is less need to forgo the space of a house,” Mr Lawless said.
Credit where credit is due
The relative ease with which buyers are accessing credit was also a factor driving the Perth market in particular.
According to the Australian Bureau of Statistics, a 1 per cent reduction in interest rates leads to about a 14 per cent increase in borrowing capacity. The Reserve Bank of Australia has cut rates by half a percentage point since the pandemic began, implying the average household could take on about $30,000 more debt – assuming they still had a job.
“Since 2014, borrowing capacity had increased by about 50 per cent, yet average loan sizes for the average West Australian hadn’t moved from $425,000,” Mr Hegney said.
“One thing I’ve learned with borrowing capacity, give people the capacity and when they decide they’re confident enough, they’ll use it!
“With Perth’s average loan sizes not moving, that puts a lot of money in people’s hands and that’s the horsepower that’ll drive this market,” Mr Hegney said.
Regionally, Mr Lawless said that while there was no real exodus from the city to regions like the migration seen in Sydney and Melbourne, there was more to the state’s regions than mining.
“The wine regions like Margaret River are really coming on, nearby areas like Bunbury and Busselton are strong, and we’re seeing the wheatbelt region emerge from a long-running downturn as well – and yes, the mining centres like Port Hedland and Kalgoorlie are on something of a tear,” he said.
In the suburbs of Perth, price pressure was strongest in the $500,000 to $1.5 million range.
Mr Hegney named the best growth prospects as the north coastal region, taking in suburbs such as Trigg, North Beach and as far north as Yanchep; the inner north of Woodvale, Kingsley and Karrinyup; port areas of Fremantle and Beaconsfield; and in the far south Falcon and coastal Mandurah.
“There won’t be any escape from the price surge, as there will be a ripple effect as buyers missing out in one market will move to the next, taking in most suburbs and the unit market,” Mr Hegney said, predicting values would rise around 20 per cent over the next couple of years.
Mr Hegney said that rising rental pressure will also drive the move towards home ownership, as it becomes cheaper to buy than rent.
“With rents rising as much as 20 per cent per annum, strong yields and open borders will also contribute to interstate investors entering the market as they chase positive returns,” he said.