If the rest of Australia historically was said to have made its wealth by “riding on the sheep’s back” then Western Australia has been hitching a ride on top of small black rocks. The minerals boom of the late Nineties and over the last decade saw WA rapidly become one of the most expensive and affluent parts of Australia. A study by Numbeo back in 2013 found that in the entire world Perth was the eleventh priciest city to live in. At one point, buying a cup of coffee in the West was so expensive you almost needed to take out a small loan.
However the good times have definitely slowed down in WA with the mining boom expected to bottom out by 2017. Net overseas migration has fallen from a high of 235 700 in 2012 – 2013 to 184,000 in 2014. With the mining boom falling away, so have jobs and economic growth.
Perth’s median house price is forecast to continue to fall over 2015-16 and 2016-17 and stabilise in 2017-18 when mining investment is expected to bottom out. In inflation adjusted terms a decline of ten percent is tipped across the coming three years.
House construction has also slowed right down and so too have development submissions and plans. Meanwhile some of Perth’s property experts have tipped that the median house price will soon fall below $500 000 – estimates that are backed up by figures showing that property sales have plummeted by 35% in the last year.
There’s also been an oversupply of both houses and apartments. This is a classic example of construction being far behind demand. During the feverish boom days there was a flood of DA’s. Now the residential housing has been approved and built the demand is no longer there. This is true of WA generally but being most keenly felt in Perth. There’s a major oversupply of apartments which has led to a drop in rents.
The recent tightening of investment lending by the major banks is also said to be a factor.
So what does all this mean for the property investor?
Certainly it’s hard to read into the data and see anything but gloom for the near future. Western Australia is undoubtedly going through a market correction, but does this mean it’s not worth investing in?
For those looking for a long term, steady growth investment Perth and parts of WA could be very attractive. It’s definitely a buyers’ market. However many caveats apply.
Jared Yeh / Flickr
The canny investor needs to dissect the areas equally.The WA property slump is not universal. There are still some solid growth areas, particularly on the fringes of Perth, in the outer suburbs where they are close to schools and airports.
While there’s an oversupply of apartments in much of Perth (especially the CBD) house prices have only marginally gone down. This means that buying a house may well be a better option for long term capital growth.
A level of foreign investment still remains relatively strong. Foreign buyers are said to make up twelve percent of new apartment sales in the last quarter. FIRB figures show that overseas buyers applied to purchase $1.32 billion of WA residential property last year. It may also be that overseas buyers are flocking to buy into a weakened market especially foreign investors who can’t get into the powerhouses of Sydney and Melbourne but want an Australian investment. Continued foreign investment will ultimately help to make the market buoyant again.
Regional WA is certainly in a big downturn, due to the mining decline. This has a flow on effect to many regional towns and centres. The prices may well not have bottomed out yet meaning that careful strategic buying in urban centres may be a better bet.
It’s worth seeking out a professional before going too deeply down the interstate investment path. It’s not entirely clear how much further the WA property market will bottom out or if further areas will yet be affected. DPN has the experience and market insights into helping you strategically pick the best area for capital growth. Western Australia has a gorgeous climate and wonderful lifestyle. And while there’s no doubt the property market will once again get as hot as its desert, come and talk to us to make sure you don’t get burnt.