The new year is gearing up to be one of hope – hope for a successful vaccine rollout, and hope that things will gradually return to normal.
For the Perth property market, however, a return to pre-COVID-19 normalcy is an entirely different proposition, with the year that was giving rise to growth many experts are now predicting will continue through 2021.
With prices on the up and confidence growing, it seems finally some good news has dawned on the Perth housing market.
“Perth currently has a major rental shortage and record-low vacancy rates,” Nicheliving Managing Director Ronnie Michel-Elhaj said.
“This will continue next year, which will put pressure on rental prices and increase confidence for investors to come back into the Western Australian market strongly in 2021.
“Key infill locations will perform stronger than the outer metropolitan areas and, with strong government infrastructure spending and projects commencing, this will see better metropolitan and community amenities available, supporting future growth in these locations.”
Mr Michel-Elhaj said as things picked up, growth began to drive itself.
“With government stimulus providing confidence in the market over the past few months, confidence in the economy has returned across WA in business investment and in the property industry,” he said.
“Confidence creates greed in the market, which is the driver for growth and activity. This is happening now.
“In 2021 and beyond, WA will perform well and should be the largest growth state across Australia.”
Mr Michel-Elhaj said new home sales were likely to ease into the new year, but that would be offset in other areas like the high-end market.
“Luxury markets, including new builds in the western suburbs, will continue to increase in demand, and key locations and quality infill developments should still see strong demand with or without the grants on offer if they are well priced and have great local amenities,” he said.
“There would still be a lot of local buyers wanting to get into their first home who may not have been able to during the grant timelines for various reasons, including affordability or changes in their employment, who would still be wanting to build a new home in 2021.
“With continued confidence, strong market conditions, record-low interest rates and property prices set to increase, first homebuyers will still be active in the market in 2021.”
Low vacancy rates and increasing prices made up the story of the Perth rental market in 2020, all underpinned by the Residential Tenancies (COVID-19 Response) Act which stopped evictions and put a freeze on prices.
In a year where vacancy rates hit an all-time low, REIWA President Damian Collins predicted new records to be smashed in the new year.
“I think what you will find is the vacancy rate will drop off in the first quarter…we will hit the low of it,” he said. “Then we will see people adjust household sizes, as tenants and investors start to buy and more supply from the building grants comes on.”
With emergency tenancy laws set to wind up in March, Mr Collins predicted rents would go up and advised tenants to sit down at the negotiating table.
“I would suggest to people to plan ahead now and think about what they want to do, as rents will go up to what is fair and reasonable,” he said.
“So you might want to start negotiating soon to lock in that rate so you have some certainty.”
Mr Collins said rents had been significantly down over the last five to six years, and that while rental affordability in Perth made it one of the most affordable cities in the country, increases in rents would be welcomed by landlords.
With the help of government grants and cheap bank loans, Perth has kicked its land sales’ slump, but experts looking into the future of the metropolitan market say the crystal ball is as murky as ever.
Following a range of government and private sector measures to stave off the effects of COVID-19, land sale numbers boomed last year to figures that hadn’t been seen since 2013, as residents jumped at the opportunity to build homes with tens of thousands of dollars in help.
Nu Wealth Strategic Advisor Craig Gemmill said he was still optimistic about Perth land buying this year, but it was unlikely activity would be as strong as 2020.
He cited affordability as the big driver in purchase rates and said indicators showed Perth was due to have another sustained run in median prices, but there were challenges ahead.
“The difficulty with increasing or keeping up with demand lies in the lengthy regulatory approval delays in getting subdivision approvals and the gearing up of site infrastructure,” Mr Gemmill said.
“Typically, in a downward or stagnant market there is no work done onsite or titled lots given the hurdles of land tax and developer contributions when titled lots are created.
“When demand increases again, it is always a mad scramble to start the cycle of lot production all over again.”
Another issue flagged by the strategist was the lack of available broad-acre subdivisions, which he said would need to be addressed through a land banking program by the large developers.
Moreover, he said COVID-19 had caused people to flee from cities to regional areas, which could disrupt healthy land sales, while conversely expatriates returning home could place upward pressure on housing stock and vacancy rates.
Mr Gemmill said the historically low number of rentals available firmly favoured the land buying market, especially combined with bargain interest rates which had made buying instead of renting a viable option.
Also persuading buyers was the government assistance on offer, which he said would have a huge “pull-on” effect, particularly for investors.
While the State Government Building Bonus grant ends on December 31, the Federal Government’s HomeBuilder program has been extended to March 31, 2021 – albeit reduced from $25,000 handouts to $15,000.
“The market is still primed for investor growth again due to the low interest rates, the low vacancy rates and our median house price,” Mr Gemmill said.
“Some of the packages we have seen for house and land apartments are showing 5.5 per cent to seven per cent returns, and borrowing money at two per cent makes these packages and apartments so attractive.
“I am very optimistic about land buying next year given the market is so broad at any time.
“When one buying demographic leaves the market another emerges, albeit with less volume than we have seen in this current climate.
“Affordability is still a big driver of purchases, and developers will respond with more cost-effective lot products and locations.”
Unit owners are likely to enjoy a bump in prices and sales activity in 2021 after a strong market bounce back in the wake of the pandemic.
Already observing an expanding demographic of unit buyers was Momentum Wealth Head of Development Phil Anderson, who said owner-occupiers had been snapping up apartments.
Also active in the unit buying space were downsizers, a group reportedly seizing opportunities to capitalise on favourable conditions.
With total stock for sale across the metropolitan market hovering just above 10,000 listings and with affordable properties on offer, Mr Anderson said the future was looking bright.
“The Perth property market has rebounded strongly from COVID-19, consumer confidence is high, first homebuyers are active and investors are slowly starting to return to the market,” he said.
“We are seeing several positive trends in the market with sales increasing, as well as prices, and we are expecting growth into 2021 and beyond.
“The unit market in the western suburbs is proving particularly buoyant, and this is largely driven by owner-occupiers who are looking to downsize but want to remain in the area.”
Mr Anderson said the appeal of apartment living in Perth and the end of the rental moratorium would also see the investor market pick up speed.
He said more eastern states investors were entering the Perth market and, despite closed borders, there had been anecdotal evidence of interest from international buyers.
Among the conditions sweetening the pot for investors is the $1.5 billion Perth City Deal, a joint State and Federal Government investment in the CBD.
Mr Anderson said the cash splash would spearhead long-term potential in the inner-city apartment market, hopefully leading to growth in the state’s long stagnant investor sector.
“The Perth City Deal looks set to offer good long-term potential for the CBD and it should help attract more students and investors into the market who will be drawn to the dynamic and vibrant culture that will be created,” he said.
“Investors traditionally only make up a small percentage of buyers, but the appeal of apartment living in Perth will likely see this section of the market gain momentum in the future.”
Though the 2021 unit market is looking sunny, Mr Anderson said there were several challenges brought on by COVID-19 that had the potential to stunt growth.
The biggest obstacle was the risk of a second coronavirus wave hitting Perth, while the reduced presence of foreign buyers and students who were usually active in the market was also flagged as a challenge.
Mr Anderson said the priorities and buying decisions of home hunters had also been changed by the pandemic, leading some people to find the apartment lifestyle less attractive.
“During the COVID-19 lockdown we have noticed a trend towards buyers valuing space and natural amenity, and the lingering risk of a second wave of lockdowns could impact buyer decisions,” he said.
“That said, we are designing apartments that address the needs of the modern workforce and this need for additional space with initiatives such as incorporating communal workspaces that allow residents to work from home.”
Following a mix of government and private sector activity, experts believe WA’s sleepy regions are due for an awakening.
According to property data provider CoreLogic, regional Western Australian property prices have already begun to pick up speed, with sales volumes in the three months to November an estimated 58 per cent higher than the same period in 2019.
Land sales have enjoyed a welcome boost and the unit rental market has also seen an uplift, with rents increasing a remarkable 7.1 per cent across country WA last year, surpassing a 6.4 per cent rise in house rents.
Leading the list of positive 2021 market predictions was the Pilbara, which CoreLogic Head of Research Australia Eliza Owen said had sunk the furthest from previous highs.
Citing the East Pilbara’s dismal $227,000 property price average, Ms Owen said from a cyclical standpoint, the region had a lot to gain in terms of recovery.
“We have already seen East Pilbara top capital growth rates for the year to November across regional WA, with an increase of 2.7 per cent over the year,” she said.
“This region could see further growth over 2021, especially if mining projects across underexplored terrain take off.
“However, it is because of the fluctuations in mining activity that this region has proved so volatile, which is important to keep in mind.
“I also think the Bunbury region has decent fundamentals for an uplift in 2021, as it’s more of a lifestyle market, where typical dwelling values were just $343,000 at November 2020.
“The normalisation of remote work through COVID-19 may support demand for this area.”
Though the pandemic has shaken countless global sectors, Ms Owen said the state’s regional property stakeholders had battled against stronger headwinds than COVID-19.
While as of last November average country home values were sitting around $334,000 – a gloomy 40.6 per cent below January 2008’s record high – historically low interest rates and smart government fiscal policies have been attributed to a beefy spike in sales, a one per cent uptick in values and a prediction that land sales will be uplifted through the first quarter of 2021.
“I believe first homebuyer incentives, as well as the HomeBuilder and the Building Bonus grants have had a lot to do with this, with State Government data suggesting the First Home Owner Grant utilisation for new properties was at near-record highs during October 2020,” Ms Owen said.
“This means sales and prices will probably be tied to stimulus in 2021.”
Ms Owen added that upward-trending growth across the entire market in regional WA might also be pushed forward by border movement, normalisation of remote work, affordability for first-time buyers and good management of COVID-19.
“Provided COVID-19 remains well contained in Australia, and we see distribution of an effective vaccine, the monetary and fiscal policies surrounding COVID-19 may actually have served to revive a rebound in the market that CoreLogic data had shown evidence of before the onset of the pandemic,” she said.
“Between an uplift in mining activity, highly accommodative monetary policy and a strong mix of State and Federal Government incentives, the regional WA property market is poised for a recovery trend in 2021.”