Perth Property Market and why you should invest

We are developing a property investment series in the next coming weeks. We are kicking off this focus on Perth. More than 60 suburbs across the Perth region managed to record median house sale price growth during July, new data has revealed.

According to the latest data analysis from the Real Estate Institute of Western Australia, a total of 65 suburbs saw gains over the month, leading president Damian Collins to consider the Perth market as “still tracking along well”.

The Perth market typically slows in winter but a  large number of Perth suburbs are still seeing growth despite the three recent interest rate rises. Perth recorded a 0.2 per cent increase to its home value index, according to the latest numbers from CoreLogic.

Perth is one of the few capital cities in the country that has seen continued growth in home values since the Reserve Bank of Australia made the decision to increase the cash rate. According to the Real Estate Institute of Western Australia, the state’s strong economy, growing population and affordable housing positions the WA marketing in a much better position to manage the increased costs of servicing a loan than east-coast counterparts.

Added to this there is also a housing and labour shortage simultaneously. Due to  low stock levels and properties are not being built quick enough, competition amongst buyers will remain high and prices will continue to rise,” he outlined.

Top Perth Suburbs in July 2022

The stand-out suburb for the month of July was Brabham, which recorded gains of 10.1 per cent — and led to the suburb reporting a new median house price of $333,750.

Taking out the second spot this month was Alkimos, where the average property price is now $371,250 — an increase of 4.6 per cent.

Lakelands (up 4.1 per cent to $385,000), Banksia Grove (up 3.7 per cent to $420,000) and North Perth (up 3 per cent to $865,500) rounded out the top five for July.

Why the predicted housing price crash may not happen in Perth

A recent hysterical prediction by ANZ Bank claims Perth property prices will fall 13 per cent over the next year, swiping $70,000 from the median priced home.

Demand

According to market analysts, Perth property prices will stagnate over the next year, rather than fall due to supply and demand issues that are unique to Perth.

• Firstly, demand for housing in Perth is strong, shown in part by having the highest rents relative to property values in the country
• High rents encourage renters to buy their own home because a mortgage doesn’t cost too much more than a lease. This boosts entry-level demand.

From the landlord’s perspective, high rents improve profitability. Not only does it help them weather interest rate rises, but it encourages them to pay more for the investment property in the first place Perth’s high rents will continue attracting investors, including many from the east, feeding another pool of demand. New demand will also come from an anticipated increase in skilled migrants, who are expected to come to Perth for its ample job opportunities.

Supply

The housing supply, however, is not growing fast enough. Based on the State Government’s own population projection, the Real Estate Institute of WA estimates the existing shortage of 8000 homes will more than double within four years.

There is another big reason why properties won’t fall in value as they will on the east coast, homes are already undervalued. While house prices are hotly overinflated over the east, Perth is selling below replacement cost in many cases, especially following a 20 to 40 per cent hike in construction costs over the past year.

The market is slow to reflect change, but pressure is mounting for higher build costs for new homes to translate into bigger prices for established ones. The market is slow to reflect the change, but the pressure is mounting for higher build costs for new homes to translate into bigger prices for established ones.

Perth dwellings are undervalued by 10 per cent which supports the notion there is pressure on prices to increase — not drop. The real impact interest rate rises will have on property prices will be through borrowing capacity.

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