Frustrated sellers turn to leasing
When the going gets tough, the tough get leasing. That seems to be the mindset of property investors in Perth, Western Australia, right now.
After experiencing some of the biggest price gains in the country for several years during the mid-2000s mining boom, Perth house prices corrected in 2008, wiping 12 per cent off the median value, and leaving owners, who bought at the peak, with property worth less than they paid.
No one wants to cop a loss if they don't have to and it seems that in Perth many investors are hanging on, opting to lease out their properties rather than sell at present market values.
'This allows them to capitalise on the low vacancy rates and strong demand for rental properties, particularly in the upper end of the market,' says Nathan King, director of valuation business LMW Hegney. For while Perth's median house price remains on a protracted decline, rentals are continuing a strong upward trend - not something those out of the property market want to hear, but good news for landlords.
According to the Real Estate Institute of Western Australia (REIWA), Perth's median house price is headed for a record sixth consecutive quarter of decline in September and, as a result, thousands of homeowners are refusing to sell. Latest REIWA figures show that the number of properties on the market in Perth has fallen by 11 per cent since the end of June.
'What we are witnessing is a large number of sellers simply taking their properties off the market rather than stock being diminished through sales,' says Stewart Darby, REIWA's head of research.
'Our revised metropolitan median for June is now A$477,000 [HK$3.8 million] and it looks like it will settle at around A$467,000 or below by the end of the September quarter. However, it's important to note that strong activity from first homebuyers is contributing to the fall in median price.'
First-time homebuyers now constitute about 25 per cent of the overall market, REIWA says, with the larger number of more affordable properties being sold skewing the median downwards. Discounting of properties seems to be slowing, which 'suggests that sellers are finally getting the message and agreeing to price their properties to meet the market and not to hold out for unrealistic expectations'.
However, rents, particularly in the inner-city, are climbing. REIWA data shows that the vacancy rate for rental properties in the metropolitan area has dropped back to 3.1 per cent in the three months to August, and looks set to fall further. As a result, the median rent jumped by 4 per cent in July and August, following an earlier rise in the March quarter.
Darby says this is unusual. 'We have not seen any mid-year rent increases for some time.' He attributes the spike in rental demand to the fact that fewer people were buying homes 'but still needed a place to live'.
LMW Hegney's Nathan King agrees realtors are reporting strong rental demand for inner-city flats.
'We expect this market sector to show signs of increased interest in the longer term due to many inner-city projects which are earmarked for development,' King says.
Sales-wise, the upper end of the housing market, in particular those suburbs located along the inner coast, are still struggling to find equilibrium with stock levels still outweighing demand.
'However, some real estate agents have indicated that inquiries have increased somewhat,' King adds. 'Traditionally, this market remains fairly dormant during the winter months with increased activity occurring during summer.'
Could this signal the return of investors? REIWA president David Airey believes they may be having another look at the Perth market. Especially at lower-priced homes around the median range of A$400,000 to A$600,000, that are still in demand, he says.
'We're seeing a few signs of bargain-hunters,' Airey says. 'I think that the continued fallout in the share market will see a lot more buyers come back to quality, well-located property as a safer haven than shares with better growth and income prospects.'
Perth would be on investors' radar due to its increasing population 'and the resources and development boom that will continue to keep property in demand', Airey says. 'I believe we have bottomed out and that the metro median price will bounce around just a little bit over the next six months.' Most trade-up buyers are sitting on their hands, perhaps nervous about the wider economy and waiting to see how things work out in the United States and European economies before committing to a purchase, he notes. 'Overall, things are settling and I am optimistic about the new year.'
- Decline in Australian home prices in the year ending in August
- The top fifth of the market dropped 5.5 per cent