State of Play in a changing market.
Much has been made of the nation's two-speed economy, the have's of the resource rich states and the have nots. The Perth property market, on all accounts, has gone into a tailspin since the Reserve Bank started lifting interest rates and the Government withdrew its first home buyers' grant boost. However, there are growing signs of a two-speed economy within WA. In contrast, the mining sector continues to boom thanks to the huge increase in prices enjoyed by iron ore producers (and by coal producers on the East Coast). Last weeks balance of payment figures showed a 66 per cent improvement, driven almost solely by miners. Some lenders are positioning more attractive LVR products to attract buyers.
Off the back of the strong unemployment figures the dollar improved and regained momentum on the US dollar today. It is therefore not surprising to have witnessed the States resistance to any new proposed taxes that could impede on the resource boom with the continuation of the current government. The landscape is quite sketchy with regional areas performing with above average returns as the resources trade is developing and the availability of housing for workers are under supplied for current demand. It is quite a different picture through the metropolitan. As revealed in The West Australian last week, the Government estimates a population of 2.2 million by 2031 which will require 328,000 new homes, of which 121,000 will be in the central metropolitan area. The City’s Directions 2031 will have a positive influence to high capital growth areas and modest gains will be the outlook for some property owners who may be able to redevelop, subdivide or sell off their properties with the proposed higher density. The outlook is a more convenient lifestyle orientated buyer looking for those features that deliver on value, such as transport, access to parks, schools, beaches, neighbourhood service centres with an accent on lower costs to commute and less maintenance. Planning Minister John Day said meeting the targets would require big changes to councils' town planning schemes, but he hoped to see some projects underway in two to three years. The 20-year strategy set a target of 47 per cent for infill development, with the other 53 per cent coming from greenfields developments, new land allocated for projects.The infill target was well above the 30 to 35 per cent achieved over the past decade or so, Mr Day said." Mr Day said some people would still want larger blocks and that should be provided for, but a greater choice of apartments was needed in well-located areas.The WA government wasn't looking at 20-storey blocks, more at five- to six-storey structures along major public transport routes or highways, he said. The aim was smaller homes on average and greater use of public transport while ensuring Perth remained one of the most livable cities in the world.
Suburbs closer to the City showed evidence of larger volumes of sales in comparison to a softening in volumes of sales in recent months.The overall fundamentals for the market remain strong, although the effect of a decline in immigration figures, an oversupply of properties to meet current demand and flat lining rents have seen some vendors in the market discounting.
National building approvals as measured by the ABS also showed a surprising burst of activity, lifting 2.3 per cent through July. Approvals for private homes fell 0.1 percent. The overall improvement was driven by a 7.7 percent increase in approvals of units and apartments which, over the past year, are now up 38 percent. But WA is struggling, with house approvals down 14.4 percent while overall approvals were down 4.9 percent. Total approvals in WA have dropped a quarter since peaking in February. The right property for today is either out there to be found or could be built with the affordable house and land packages within the turn of what may yet prove to be another sound year in real estate values.
Shoppers have returned to the nation's malls, developers are building new units and the country's miners are driving a sharp improvement in Australia's trade performance, a suite of figures out last week showed. But the picture is not as good in WA with retail sales down 1.8 per cent.
The latest figures indicate spending is targeted much more conservatively with a trend line of an upswing in restaurants and food trade with a decline in more involved capital expenditure. Should the rental trend continue to flat line, it wouldn’t seem surprising for larger numbers of investors to offload properties onto the market, where buyers will have a smorgas board of opportunity to select those homes that offer something extra. Buyers are buying however select the best and plan with the prospect of a further rate rise ahead taking the average days on market for July to 66 days.
RP Data-Rismark figures, showed the median house price in Perth edged down 0.8 percent in July. The median price is now down 2.6 per cent this quarter, at $485,000, and has improved just 0.3 per cent since the start of the year. Unit prices dropped 1.8 per cent in July, 2.3 per cent over the quarter and one per cent since January. Housing Industry Association figures out yesterday showed the number of new homes sold in WA fell to a six-year low in July.The trend is not that uncommon which reminds one of the market we had seen just after the fantastic growth recorded during the November 2007 period, with a then median at $475’000 and the average rent at $460 per week we have still moved forward marginally although the market had improved in March and softened to July with 61% of vendors discounting.
The luxury property market, with vendors in the Southern districts of Dunsborough, a typical holiday rich investment area discounting prices by as much as up to 50% of the first advertised price. The trend could be some what of panic as to the fear of rising interest rates and significant drops in property values, scraping by with mortgage commitments. The local economy is fore casted to see unemployment reach 10% and interest rates hit 10% before we will even be able to contemplate drops in property values of 20% or more.
The effect will be equally beneficial for those sellers who have done something to their property such as renovation to kitchens, bathrooms, simply redecorating or with the assistance of a DQ realestate professionals’ guidance positioned their home as superior value in today's market.
Australia’s ratio of household debt to disposable income was 157 percent as of March 31, central bank data show. It was 133 percent in the U.S. before the housing collapse began in 2007, according to the Federal Reserve Bank of San Francisco. Rising borrowing costs are a “revenue headwind” and a relaxation to borrowing costs could help the market along in coming months. Australia’s increasing population and limited supply make the market very different from the U.S. and Europe although most lenders consider a 90-95% LVR healthy as it gives buyers an equity buffer.
The service professional real estate agents contribute with database markets in today's market is invaluable. Going forward we could see stabilising volumes of sales in the mid-higher end properties with the Baby Boomer generation retiring and attractive offerings for younger buyers wanting to get on to the ladder in more affordable areas.
Further Reading:
(The West Australian)
(REIWA)
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