Investing in Perth. Understanding the drivers of the property market in Western Australia

Transcription

1 Investing in Perth Understanding the drivers of the property market in Western Australia

2 01 Investing in Perth Perth shares a business time zone with 60% of the world Investing in Perth Perth s Property Market Perth is the capital of Western Australia, with an estimated population of 2.04 million residents. Over the last 10 years Perth has been the fastest growing capital in Australia adding an average of 49,422 people annually. It lies along the coast of some of the world s most beautiful beaches, with the central business district sitting on the edge of the Swan River. It s no wonder Perth is a desirable place to live and is placed in the top ten of the world s most livable cities. WA is a major resource region for Australia and shares a business time zone with 60% of the world s population. It is the closest, most major Australian city to Asia - one of the world s most dynamic growth regions. Perth remains a buyers market; and will for at least the rest of There is much to suggest that Perth is now nearing the bottom of its residential property cycle. The Perth residential market softened again during the first half of 2016, with transactions and prices moderating. From the peak of the housing market, Perth values have fallen over 6% for both houses and units. This provides a good opportunity for investors to prepare for the next upswing, along with rental yields in excess of those in Sydney and Melbourne. Source: ABS

3 Butler Investing in Perth 02 Joondalup Swan Valley Midland Perth CBD Fremantle Thornlie Armadale Rockingham Mandurah TRAIN LINES MAJOR ARTERIAL ROADS CITY CENTRES

4 03 Investing in Perth Key Drivers Understanding the Drivers of the Property Market Population Growth Economy and Employment Supply Consumer Confidence Understanding the key drivers for long term demand in the property market is crucial to making smart investment choices. Then you can rely on the facts, rather than what you see and hear in the media. The fundamental drivers of demand, regardless of location, for investors to consider are as follows. 600 people per week added to Perth Source: ABS Population Growth: A growing population means an ongoing demand for housing. As a population grows new households are formed (or arrive) and need somewhere to live. New migrants from interstate or overseas are an important source of new household formation. Economy and Employment: Economic growth means employment. The more jobs created the more people are likely to relocate and remain. Employment means incomes and the ability to pay a mortgage or rent. Supply: The amount of available supply will have an effect on demand and prices. Less supply means greater competition for fewer dwellings, pushing prices up. While high supply means prices are more affordable and the urgency of demand is reduced. Consumer Confidence: In the short-term consumer confidence can affect what is happening in the property market, regardless of the actual economic fundamentals. When potential buyers and sellers are unsure about the future there tends to be less activity in the property market. This can keep prices and transactions low (or high) in the short term, and can change quickly in line with confidence. Population Growth 47 OVERSEAS MIGRATION Source: ABS 30,980 TOTAL WA GROWTH

5 Top Migration Countries to WA in Terms of 000 s Annually UK Philippines Ireland India China Source: Dept of Immigration and Border Protection, Skill & Family June 2015 Investing in Perth 04 Population Growth WA s Economy WA s population increased 1.2% over the year to December 2015, with overseas migration accounting for just under half (47%) of WA s population growth. Although some resource-based areas such as the Pilbara and Goldfields have seen a recent decline in population, Greater Perth added nearly 600 people per week over Over the last 5 years Perth s permanent population has grown by 258,061. The medium and long term outlook for WA population growth is very positive. Well respected economists Deloitte Access Economics forecast WA s population growth will rebound and return to being the fastest growing state within 4 years. Most of this increase will happen in Greater Perth, which is projected by the Australian Bureau of Statistics (ABS) to grow to 2.9 million people in ten years (from 2016). This means that there will be an extra 131,000 households in Perth within 5 years and an additional 267,000 households in ten years. Much has been said about the contraction of the resources industry and its effect on the Perth economy. WA s transition from record business investment levels has seen the economy slow from record highs in 2012 to normal longer-term trends. Despite this, the investment flowing into the state is still more than three times higher than it was 10 years ago. Business investment in WA currently contributes 20% of the State s economy. This is higher than all other states except the Northern Territory. As a major global resource producer with a vast wealth of natural resources - offshore petroleum and natural gas, iron ore, nickel, copper, manganese, gold, rare earths, uranium and potash; WA still has a lot of what the world will require far into the future. In fact Western Australia was ranked as the world s most attractive mining investment destination, according to the internationally respected Fraser Institute s Annual Survey of Mining Companies in The State Government is investing in WA s future with over $10 billion committed to infrastructure projects in the State Budget; improving livability and generating jobs. There is also more than $120 billion worth of resource projects that are committed or under consideration for the State during the next few years, which equates to 30,000 construction jobs and more than 5,000 permanent jobs. Investment in WA Source: ABS $14.74B YEAR ENDING MAR 2006 $48.05B YEAR ENDING MAR 2016 Greater Perth is projected to grow to 2.9m people in 10 years

6 05 Investing in Perth 79,900 Source: DAE June 2016 Employment The height of the boom was 2012 and since then WA has started to transition from a resources-based to a population and service-based economy. The biggest employer in WA in was the health and social services industry, followed by construction and retail trade. Mining is still a major contributor to WA s economy with employment numbers trending upwards since early Recent employment figures have seen mining rebound to the 4th largest employing industry with 8.2% of WA s workforce in June Seasonally adjusted unemployment for WA was 5.7 per cent in June 2016, and below the national average. This is well down from the high of 6.5 per cent experienced in November WA s employment numbers are still growing, albeit at a slower rate. In the last 4 years, since the height of the resources boom an additional 48,000 jobs have been created in WA. Deloittes Access Economics forecasts jobs are expected to grow by 79,900 in the next 5 years. Demographics of Perth and Potential Renters As at the last Census, 27.6% of people in Perth rented a property. People aged were most likely to rent in Perth with almost two out of every five persons in this age group living in rental accommodation. The majority of renters (63%) occupied a separate house, likely to be due to the low historical supply of units in Perth. Almost two thirds (64%) of all units were rented, at the same time, reflecting a high propensity for unit purchases by investors. Perth residents tend to have a higher income per capita than residents in other states, with average weekly full-time earnings of $1,803 as at the December 2015 quarter. Perth is also home to a high proportion of new residents with 40% of all residents born in another country. Overseas migration has long been the biggest source of population growth in Perth. Over the last 10 years, an average of 650 people each week have arrived from other countries, requiring places to live. Most new residents will initially rent and then move on to purchase their own home. Supply Residential building activity has continued to decline with approvals and commencements trending lower, since the end of This will ultimately see a slowing of new supply coming to the market as the recent surge in construction activity for Perth normalises. There are currently some 48 new apartment projects being marketed in Perth, which is much lower than in other capital cities. However if these new apartment developments are not able to achieve sufficient off-the-plan targets, they are unlikely to proceed. Consumer Confidence Short-term WA consumer confidence weakened during the March quarter, according to the latest Survey of Consumer Confidence by the Chamber of Commerce and Industry WA, which found perceptions were most influenced by concern over global economic news. The recent federal election also saw confidence dip slightly at a national level, but this is expected to rebound once the Coalition is firmly in place.

7 Investing in Perth 06 Aug 2016 May 2016 Residential Market Update - March Quarter % % % % % Median House Price Comparison % % 2.6 % Median Unit Price Comparison House Unit 3.8 % 4.4 % 2.9 % 3.9 % 2.8 % 4.0 % Prices & Growth As noted by Core Logic, the median house price in Perth for the 3 months to August 2016 was $510,000 which was 1.9% lower than the previous three months to May However almost all capitals saw a decline in prices over this period. Perth house prices are still amongst the lowest in the country, being 42% lower than values in Sydney and 21% lower than Melbourne. The median price of units in Perth was $408,200 for the 3 months to August This is down 2.8% from the previous quarter. Again, these offer good value in comparison to other capital cities. Rents Perth house and unit rents contracted over the winter months, as did most of the other capitals. Perth rents for houses were $428 per week over the 3 months to August 2016 according to Core Logic, while unit rents in Perth attracted a median rent of $387 during the same time. Perth s vacancy rate at the end of the June 2016 quarter was 6%, which was 40 basis points higher than the previous quarter. Yields Rental yields for Perth houses were 3.8%, while units were able to achieve a higher 4.4%. The rental yields achievable in Perth are attractive to investors who realise that they offer better returns than comparable properties in both Sydney and Melbourne with respective rental yields of 2.9% and 2.8% for houses; and for units 3.9% and 4.0%. Interest Rates & Finance The Reserve Bank of Australia (RBA) cut the cash rate to 1.5 per cent during its August 2016 board meeting. This has set a new historical low. The previous interest rate cuts in May 2016 and August 2016 may stimulate the purchase of dwellings. Investor finance currently accounts for 38 per cent of all dwelling finance commitments, which is down from a previous high of 45 per cent in June This moderation in investor activity has reduced the competition for dwellings and according to the Real Estate Institute of Australia, WA s affordability rating is now at some of the highest levels seen since Gross Rental Yield Comparison Source: Core Logic RP Data

8 Prepared by Level 3, 6 Bennett Street East Perth WA 6004 T: info@exclusiveinvestoralliance.com.au exclusiveinvestoralliance.com.au Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. The opinions, estimates and information given herein or otherwise in relation hereto are made by Colliers International (WA) in their best judgement, in good faith and as far as possible based on data or sources which are believed to be reliable. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. Prepared for exclusive use by BGC.