Understanding Perth’s Property Market Cycles

Buying off the plan can be fraught with danger if you get the timing wrong.

You see the benefit of buying this way is to use the market cycles to your own advantage. If you understand them then you can do extremely well with this way of purchasing.

If you don’t understand the property market cycles, then you can literally cook yourself in your own juices with worry as you realise you’ve got your timing completely wrong.

So, how can you ensure you aren’t going to have a disaster tale to tell when you finally settle on your off the plan purchase?

The first thing to do is ask yourself, are we getting anywhere near the top of our market – the Perth market that is. If property has been growing strongly for anything from 4-5 year’s then you know the market is getting at or near its peak.

Everyone knows unless you’ve been living in a cave that the Perth market has been in the doldrums for some years now. In fact, Perth hasn’t seen a major property growth cycle since 2006/2007 when the last major property growth cycle ended.

Given all of that you can rest pretty easy knowing you aren’t doing something crazy at the exact wrong time of the market.

Buying off the plan really requires that you buy in a market that is showing good value now with growth prospects during the period you’re waiting for settlement. This is generally anything up to two years or so.

This can really pay off handsomely if you time it right. And this is why we’re pretty excited about where we’re at right now.

If you have any interest in buying Off The Plan then listen carefully…

We now have an excellent opportunity in the Perth market whether you’re buying off the plan for an investment, as a downsizer or as a first homebuyer.

Here’s why.

With Perth’s mining downturn, low population growth and an over-supply of housing, this has meant Perth’s housing market has been treading water.

But all roads are seemingly now leading to a serious opportunity.

Between 2001 and 2007 Perth grew almost 200%. As I mentioned before Perth is overdue it’s next major growth cycle and there are certain indicators that point to exactly that.

Less Properties For Sale

The number of properties currently on the market is a key indicator to supply and demand and this number has been dropping rapidly.

According to REIWA there are currently 11,903 properties on sale in the market in Perth (April 2020). This has dropped significantly from 16,934 this time last year. Stock levels have not been this low since 2014.

This means the excess stock is rapidly getting soaked up and what’s more, it’s a reasonably long-term trend now.

Days On The Market

This goes hand in hand with the supply that’s dropping as mentioned above. As you can see in this graph from REIWA the average selling days has really dropped significantly and property purchasing has become more urgent.

Source: reiwa.com.au

This means that supply is not only tightening but the appetite to purchase property is returning and returning quickly. As you can see the average time to sell a house has dropped from 84 days to 68 days in only the last quarter of 2019.

Value In The Perth Market

As mentioned before, when you buy off the plan you need to be buying at the bottom of the market (or near too) and not toward the top of the market where the value has already been extracted from the market.

Perth currently has the lowest median house price of any major capital city in Australia. Figures from REIWA show that the Perth median is currently just $480,000. Apartments come in even lower at $375,000.

Source: realestate.com.au

Source: reiwa.com.au

Low Vacancy Rate

Perth’s vacancy rate has plummeted to a low of 2.4% (Domain). That means that there is a lot less stock for would be renters to choose from and this in turn will put pressure on rental rates. This is excellent new for any investors looking to get into the market. What’s even better is that strengthening rental returns looks like it could be a long-term trend now.

Source: domain.com.au

Rental Rates Increasing

Again, this goes hand in hand with vacancy rates. As vacancy rates have dropped i.e. less properties available to rent, the rental rates have started to climb. According to Domain’s latest data, over the past year Perth’s median house rents were up by 2.8%, and unit rents were up by 3.3%. Bad news for renters but very welcome news for property investors – and a good sign that the overall economy is improving.

Cheap Money

Of course, we’re all aware that interest rates are at the lowest rate they’ve ever been at. In other words, the cost to borrow money from the bank has never been cheaper. Couple that with the above and you can see why the perfect storm is brewing.

Mining Activity

Of course, it would be remise of me to not mention the mining activity that has been picking up over the last couple of years now. Billions of dollars are heading back into the mining game which will once again likely see more people heading west for work. Another exciting chapter to this is the potential for WA to be a world leader in Lithium production.

Where To Buy

The only thing left is to consider where would actually make sense to make a purchase Off The Plan. Throw a dart at a map of Perth? Pick a suburb out of a hat? Or maybe look at some key fundamentals that will help you purchase in a high growth area? Let’s do that.

But First

Before I mention a couple of specific areas it would pay to understand that when buying an apartment there’s a couple of things to keep in mind.

Firstly, buying an apartment in the CBD may not be the best choice. The reason why is that banks see the 6000 post code as a high risk for them. That means borrowing for an apartment in the CBD will be a bit trickier. The reason for this is that the CBD is quickly become oversupplied with apartment towers which means it’s relatively easy to over supply this area.

Secondly, it’s pointless buying an apartment in an area that doesn’t have a lot of entertainment, shopping and general infrastructure. People mostly buy apartments for convenience and lifestyle. If there’s no lifestyle attributes in the area you’re in and it isn’t well located, then the apartments will struggle for growth. Essentially it can be the wrong type of development in the wrong area.

What we want to be looking for is convenience and lifestyle as I mentioned.

This means outside of the 6000 post code but still within the inner ring on Perth. That means within about 5km of the CBD but not in the CBD.

The benefit of areas like this from a growth standpoint is that you’ll be getting into a high median priced suburb for a portion of what you’d pay to live in an older style house. The upshot is that you still get to benefit from everything that the location offers without the heavy price tag of buying in. This will give you an excellent profile for growth.

Let’s Look At Como

como paradiso apartments

Como is situated approximately 5km from the Perth CBD on the southern side of the Swan river.

This is a classic area that is incredibly well positioned and has a great entertainment precinct (restaurants, cafes and boutique shops). It’s also close to the Swan and Canning rivers with lots of nice places for walking, running and cycling.

Shopping and transport needs for locals is well catered for with Waterford Plaza shopping centre and the Canning Bridge train station.

A lot of capital is being invested into the area including the Canning Bridge precinct that will include the development of a mix of office, retail, residential, recreational and cultural uses, maximised by its unique transport hub location.

The median house price of Como is $875,000 (April 2020). As an investor, downsizer or first homebuyer you can stick your flag in the ground of a suburb like this in the Paradiso development from just $399,000. That means your tenant is getting all the same benefits from the area as someone that has paid much more to live in the same area. As mentioned, this is key for strong rental returns.

An area like Como is perfect for off the plan buying due to its locality and amenity. This area is particularly suited to downsizers looking for a lock and leave lifestyle and investors looking for a low maintenance property in a high demand area.

Como Suburb Profile (April 2020)

✔️ Proximity to CBD: 5km

✔️ Median rent (units): $330

✔️ Gross rental yield (units): 3.96%

✔️ Median property prices (units): $460,000

✔️ Annual growth over the last 12 months (units): 2.22%

✔️ Vacancy rate: 2.73%

Sources: realestate.com.au and CoreLogic

Getting Around

✔️ Kwinana Freeway

✔️ Canning Bridge Train Station

✔️ Mends Street Jetty is 4km away (then takes just 10 mins on the ferry to Elizabeth Quay)

Estimable Education

✔️ Penrhos College private girls’ school

✔️ Collier Primary School

✔️ Como Primary School

✔️ Como Secondary College

✔️ South metropolitan TAFE (Bentley Campus) 9 min or 4.6km

✔️ Curtin University (8 min or 4km)

An Abundance Of Cafes & Entertainment

✔️ Cafeli’s (1 min walk)

✔️ The Karalee on Preston – 1.7km away (<5 min drive)

✔️ South Perth Esplanade

✔️ Preston Street Cafe strip

✔️ The Como Hotel (3km away or 8 min drive)

✔️ Raffles Hotel

Shopping

✔️ Waterford Plaza shopping centre

✔️ Garden City (4.8km)

So, there you have it

With the market in exactly the right spot to make a strategic purchase off the plan you would be well advised to take this information on-board.

You’ve now seen the macro view – where Perth is at and why the timing is starting to create the perfect storm. You’ve also seen the micro view with a suburb like Como that fits the bill for investing in new off the plan stock.

All that really remains is to get those finances in order and let the market do the work.

If you’re looking to purchase a brand-new apartment in Como, we have some amazing developer incentives to help you secure your new lock and leave home or investment. If you’re an investor find out more about it here – if you’re a downsizer find out more about it here or first home buyer find out more about it here.

To enquire about our range of apartments and availability, contact us right here to book an appointment with our project manager.

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