Damian Collins from Western Australia is a guest today as we reflect back on that market in 2016, the lessons that came from it and Damian tells us that there is some good news on the horizon.
Kevin: Let’s check in with another one of our experts who we spoke to this time last year – Damian Collins from a very interesting market, WA, from Momentum Wealth, buyer’s agents in that state.
Damian, thank you very much for your company. Welcome to the new year, and happy New Year.
Damian: Same to you, Kevin, and we certainly hope to see a happier new year than 2016 for people investing in the west.
Kevin: Let’s reflect on a few things that you made comments about this time last year.
Damian: Well, I think in terms of the Perth market, by the time we get into this time next year – early 2017 – we’re going to be saying we’ve just seen the seeds of recovery. In the first half of the year, the market is probably going to be fairly similar to what it was in 2015 – fairly flat and a tough rental market – but towards the end of the year, we’ll start to see the signs of recovery as rental vacancy has peaked and started to drop back. A bit more confidence back in the West Australian market, and early stages of hopefully a reasonable upcycle – nothing significant, but a reasonable upcycle over the following years ahead.
Kevin: What about those green shoots, mate? Did they start to appear?
Damian: Towards the end of the year, Kevin, we saw the median price growth start to tick up. Both [1:18 inaudible] and CoreLogic saw growth in the final quarter in the median price. There are glimmers of hope on the horizon. Building approvals – which is the supply coming into the market – have certainly slowed down, but we still have low population growth.
We’re at the bottom of the cycle. Exactly where we are is always difficult to say, but 2017 is going to be another year of slow recovery. I’d expect the prices to be fairly stable across the board, but you might find a few pockets here and there where you might do a bit better than the market. In the years ahead, there’s still a strong long-term outlook for Perth, but short term, it’s not going to rise in a hurry.
Kevin: Was it a tougher market in 2016 than what you had anticipated, Damian?
Damian: It was a little bit tougher, yes. We thought that the market might start to recover, and as I said, the median price showed it did towards the end, but I still think that might be a just quarterly blip.
The population outflow was the big one that I think took people a bit more by surprise. It was evident that with the end of the mining construction boom, we’d see a slowdown in population growth coming in, which we definitely did, but the number of people leaving and going out of state or overseas was higher than most people expected.
That has held back the recovery. Going back 12 months ago, I would have thought coming into 2017, we’d be starting to see it pick up from early 2017, but I still think that’s going to be towards the end of the year or even in 2018 before we see a sustained, across-the-board recovery in the property market.
Kevin: Do you see any opportunistic buying coming into the WA market, given the fact that things have come back a bit, Damian?
Damian: That’s where it is at the moment, Kevin. As you would know, you have Sydney, Melbourne at the other extreme where people are paying potentially over the top. They’re at the other stage of the cycle, and we’re at the bottom, so we’re certainly getting some really good properties that in a normal market, you’d find more competition, and we’re getting them at exceptional prices.
If you have a long-term vision, the fundamentals are there in Perth. The agricultural sector is going very strongly this year. It’s not just mining. Mining is the big industry. Commodity prices have recovered. As we speak, it’s about $80 (U.S.) a ton and has been for a little bit.
The fundamentals are there. I think it’s just confidence that holding people back. It’s a great year to get those opportunistic ones, lock them away, and if you have a five- or ten-year horizon, you’ll still do well.
Kevin: Can you be a bit specific and tell us where you think some of the best opportunities lie right now in WA?
Damian: We’re certainly focused on being in proximity to infrastructure and particularly trains and future train lines. Obviously, we’re seeing tourists spending a ton of money in New South Wales and Victoria. As the city gets bigger and more congested, people really focus on that public transport, and that becomes an important determination of where they want to live.
Perth is getting into that stage; it’s two million now. We’re focusing up in the Northern Corridor. We still like Warwick and Joondalup and Craigie up the Northern Corridor, and we still buy selectively in Forrestfield. It did have a bit of a run-up with the rezoning; it has come back a little bit, but there is still a train line going out there, which is going to make that area quite accessible to the city once that train line gets built, and it will be up and running in a couple of years.
So really, the focus is on being near that important infrastructure, and still areas that are rezoning. That’s another area we’re focusing on. We’re looking at where prospective rezoning is because that gives you that uplift. Even in a flatter market, we’ve seen some rezoned properties jump 20% or 30%.
It’s really about doing a lot of research and picking out the best properties. The good thing at the moment in Perth is that you can do that. In 12 or 18 months, it will be a lot harder, because there will be a lot more competition.
Kevin: We’re hearing some terrible stories around Australia about the tightening the banks are going through and what flow-through that’s having for a lot of developers. Are you seeing any signs of that in WA at all, Damian?
Damian: Yes, it certainly has. Because the confidence has been down for a couple of years, developers have really struggled to get projects off the ground. Getting the requisite number of presales has been very difficult, so we haven’t had a substantial oversupply of apartments. Yes, there is a bit of an oversupply, but a lot of the projects haven’t been built. We have more general oversupply in the market, whereas some of the other cities have a particular issue in apartments. So, it has been, and there have been some sales fallen over in some development projects, but nothing substantial.
But it certainly has affected investors. We’ve had clients who could potentially borrow $1.5 million before the changes; now it has pared back to about $800,000 or $900,000. So, it certainly has had an impact on people’s borrowing capacity.
Kevin: We’ve learned a lot of lessons out of the market of 2016.
Damian, all the best for this year. We’ll talk to you as the year goes through, but thank you for giving us your time and your insight this morning on the show. Thank you.
Damian: Pleasure, Kevin.