Australian Property Market 2016 Mid-Year Forecast: Western Australia

State of the Western Australian property market

The precipitous slide in property values in Western Australia appears to be showing no signs of abating. Worse still is the fact that rents are falling amid rising vacancy rates. However, the state looks set to benefit from the falling Aussie dollar and interest rates.
Key points
  • Property prices continue to fall, no bottom in sight
  • Rents are falling as vacancy rates surge
  • Economic slowdown has been relatively modest, with the overall State economy continuing to grow
  • The state is set to reap the rewards of the big resources investments in the recent years.
Positives
  • New housing supply starting to fall
  • Affordable housing
  • Lower dollar to support tourism
  • $400 million in WA-government funded transport projects to boost the economy
Negatives
  • Falling interstate migration numbers
  • Growing number of people leaving the state
  • Rapidly rising vacancy rate
  • Rents are continuing to fall
  • Property prices still have a long way to fall
Forecasts
  • Median house price to fall 1% by June 2019 from June 2016 levels- a drop of 8% in real terms.
Key infrastructure to watch
  • $207 million Karratha Health Campus
  • $416 million spread across seven health projects
  • $400 million state-funded transport projects
Sources: BIS Shrapnel, Deloitte Access Economics, CoreLogic RP Data, Domain

What's in store for investors in Western Australia and Perth?

If you’re looking for some good news in the Perth market, you’re likely to be disappointed. The sharp decline in prices and rents are both showing no signs of improving according to the reports by both CoreLogic RP Data and Domain. During the July quarter, CoreLogic RP Data showed median house values dropping by 4.7% to $510,000 with units losing 4.8% to $408,200. Over the past 12 months, house values fell by 5.6% while units dropped by 5.8%.  "Housing market conditions in both Perth and Darwin are suffering from reduced housing demand resulting from a sharp downturn in migration and weaker employment opportunities," explains Tim Lawless, research director, Asia Pacific for CoreLogic RP Data. "Rental rates have also fallen substantially in both cities, highlighting that lower housing demand is not confined to home buyers but also renters." Domain’s result mirrored that of CoreLogic RP Data and showed Perth median house prices falling for the sixth consecutive quarters. The median price is now at the lowest point since March 2013. "Like many of the capital cities, Perth is feeling the price shock brought on by a surplus of newly constructed apartment buildings that exceeded buyer demand," says Andrew Wilson, chief economist with Domain.
"Coupled with steep annual drop in house prices, Perth is a long way away from returning to a healthy market. It’s a pretty bleak environment for both houses and units. There're no signs of bottoming out in the next 12 months"  Andrew Wilson, Domain
However, the WA's economy remains resilient according to Deloitte Access Economics. The economic forecaster points out that while there's been a slowdown in the economy, it's been relatively modest with the overall State economy continuing to grow. "One of the reasons that the overall State economy is continuing to grow is that the enormous investment in the resources sector of recent years will result in a beautiful dividend for the State of increased exports of the likes of iron ore and LNG as projects such as the Gorgon LNG project reach the full production phase."

Rental market

Vacancy rates across Perth rose to around 6% overall during the June quarter according to Domain. House vacancy rate is sitting at 4.3% while units are currently at 4.8%. As a result of this higher vacancy, median rents for both house and units have fallen by 16% and 17% respectively from their 2013 peaks. "Vacancy rates in Perth are also the highest of all the state capitals. Unfortunately for investors, the downturn of the resources economy means that Perth rents are continuing to fall. With vacancy rates climbing, there’s no sign of an end point anytime soon," says Wilson.

Supply and demand

The bad news: WA’s population growth is falling with net overseas migration inflows slowing rapidly at a time when net interstate migration outflow is accelerating. The good news: Housing construction activity in the state is now fading, which allows for the existing supply to be absorbed.

Forecast

Given the falls over the past two years, the rate of decline is likely to slow according to Angie Zigomanis, senior analyst with BIS Shrapnel. Zigomanis is forecasting Perth’s median house price to fall by 8% in real terms by June 2019 compared to June 2016 levels. "Perth’s median house price has still not recovered from the mid-2000s mining boom, and by June 2019 is forecast to be 23% below its earlier March 2007 peak in real terms," he says. "Perth’s median house price is forecast to continue to fall over 2016/17 and stabilise in 2017/18 when mining investment is expected to bottom out. The corresponding decline in new residential construction is expected to also see the oversupply begin to be absorbed."

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