First home buyers in Perth are set to face strong competition from cashed up investors if current market trends continue.
According to CoreLogic, Australian dwelling values rose 6.1% in the June quarter and 13.5% in the 2020-21 financial year (see graph 1); the highest annual growth rate since April 2004. Darwin (21%) and Hobart (19.6%) led the way.
Graph 1: Rolling Annual Change In Dwelling Values – Source: CoreLogic, Monthly Chart Pack, July 2021
Yet despite dwelling values in Perth growing at 9.8% for the financial year, they are still 14.1% lower than they were at their peak in June 2014. With the exception of Darwin, dwelling values in all other capital cities are now at record highs.
And it seems that first home buyers recognise the opportunity offered by Perth’s slower price growth. In Perth the number of first home home buyers as a percentage of owner occupier housing commitments is the highest in Australia at 36.4%; and that’s despite a recent fall in first home buyer participation.
Graph 2: First home buyers as a % of owner occupier housing finance commitments (May ’21) Source: CoreLogic, Monthly Chart Pack, July 2021
It’s also apparent that first home buyers are driving the increase in dwelling values in Perth where the low end of the market saw the strongest value growth. In all other states growth came from the top 25% of the market.
Graph 3: Three months to June Perth, Hobart and Darwin growth led by the low end of market values. Source: CoreLogic, Monthly Chart Pack, July 2021
But, while Perth values are growing at a steady pace the same can’t be said for rents. In June 2021 rents across Australia were 6.6% higher than they were in 2020. In Perth they soared 16.7%. Darwin topped the nation with an increase of 21.8%.
And thanks to slower price growth and soaring rents, rental yields in Perth stand at 4.3% behind Darwin at 6.1%.
Graph 4: Annual change in rental rates to June 21. Source: CoreLogic, Monthly Chart Pack, July 2021
Across Australia, investor housing finance jumped 13.3% in the month of May, reaching the highest level of new finance for the purchase of investment housing since June 2015.
But despite the growth in investment lending, investors in WA represent just 18.3% of total housing loan commitments compared to 28.0% nationally.
Graph 5: Investors as a % of total housing commitments. Source: CoreLogic, Monthly Chart Pack, July 2021
And that leaves a lot of upside for investors to take advantage of the WA housing market.
In the coming months, expect to see increased investment activity in the Perth property market as both local and interstate investors take advantage of the opportunity to purchase quality investments that offer sound rental returns.
Investors chasing strong yields will be active in the unit and apartment market. Expect to see some price growth in this sector moderated by a more robust supply pipeline.
Those seeking capital growth will target investments with a larger land component. Properties with development potential and rentable accommodation will be highly sought after. Expect to see strong price growth in this sector.
Investors wanting a mix of capital growth and returns will be active in markets that provide a mix of decent land size and well-maintained accommodation. Traditional family homes in the outer suburbs will be of appeal so expect to see prices continue to move.
For first time buyers the message is clear; investor activity is set to create strong demand for local property. Waiting will mean paying more. It makes sense to act as early as your financial circumstances allow.