In today’s show Damian Collins, from Momentum Wealth in WA, looks at what’s ahead for Perth property.
Kevin: As we look around Australia, it’s just so interesting to watch all the different markets, and we’ve seen a bit of a topsy-turvy market in Western Australia, specifically Perth, in recent times. Let’s head that way now and get a bit of an insight as to what’s happening in that Perth market. If you’re an investor there, you’re going to be hanging off the words of Damian Collins from Momentum Wealth in WA.
Damian, thank you for your time.
Damian: Pleasure, Kevin.
Kevin: Would it be too rude to say that Perth is a bit of a cot case?
Damian: I think that’s on the harsher side, Kevin. Look, it’s definitely a market that’s had a pretty average year. You’ve found that the rental vacancies have gone up and prices have come back. Depending on the properties in the areas, some areas have actually flat-lined and even marginally gone up, but a lot of areas have come back 5%, and you get some of the more extreme areas that have come back between that 5% and 10%.
It’s certainly been an impact of two things. Obviously, the mining downturn has meant fewer people coming into Perth. We haven’t seen a huge amount of people leaving. There have been some, but by and large, it’s just been less of an influx.
What’s caused the biggest issue for the over-supply is the government threw a lot of money at first-home buyers and we had record building over the last 12 to 18 months and that’s what’s caused, I guess, a lot of extra supply in the market and also caused the rental vacancy rates to rise with first-home buyers taking advantage of all the free money from the government and going and building new homes.
Kevin: I was in Perth not too long ago, and I noticed a lot of work happening down on the foreshore there. There was a fairly big development. I just can’t recall the name of it, but I understood that there are a lot of units being built in there, as well, Damian.
Damian: That might have been Elizabeth Quay, Kevin, right on the water in the city.
Kevin: That’s the one.
Damian: There are a lot of units planned for there. There’s a hotel. Also Chevron is going to build an office down there, albeit that’s been put back for a couple of years.
What you’ll find with a lot of the inner city apartment supply is that because the market’s a bit softer, it’s not all going to get off the ground. It’s all very well to advertise and promote it, but if you don’t get the pre-sales, the banks generally won’t fund that project.
There is a bit of development happening, and Perth certainly is a good 15 to 20 years behind Sydney and Melbourne in terms of apartment and inner-city living. It’s all still relatively new. I think we’ll never be as dense as Sydney and even Melbourne, but I certainly think longer term there is some good potential. We will see certainly more people in WA drifting towards living in apartments.
Kevin: Of course, WA is more than just the Perth market – quite an interesting market how it actually follows and hugs the coast there too. Looking up and down the coast, are there any areas that you think hold great potential as we move into 2016?
Damian: Overall, the WA market in 2016 is going to be very similar to what we’re seeing in 2015, in that prices in the market could marginally rise next year, it could marginally decline. Really, no one can know with exact certainty. The rental vacancy rate, I think, is peaking. It’s about 5.5%. We might see it hit 6%, but I don’t see it going much more than that because we’re certainly seeing at our end – we manage a substantial rental portfolio – that the tenants aren’t running and going into home ownership anymore. They’re happy to stay.
I’d expect it to be much of the same as 2015, and none of the regional areas are likely to particularly outperform at all, Kevin. I think we have a still a declining market in the Pilbara, and I feel sympathetic for people who bought up there at $1.2 million, $1.3 million but they still have many years of pain up in that region, just a lot of over-supply.
All in all, if you’re trying to make short-term profits in WA, 2016 is not the year. It’s really about if you’re looking for getting a great long-term investment at a really good price, that’s what 2016 is about. You may not make a huge amount of money in 2016 because you’re not going to grow property.
I’m still confident that, longer term, WA property, particularly Perth, is going to do quite well, but you have to get used to the Perth market. It’s more volatile than the east coast. But having said that, the fundamentals are still great for the long term.
Kevin: We’re going to give you a break for a few weeks, Damian. We’ll come back in about four weeks’ time, early in the New Year. The 16th of January, we’re back and I might just get your impressions then on the Australian market, and we’ll try to delve a little bit deeper into the Perth and WA markets, as well.
Damian Collins from Momentum Wealth, thank you so much for your time, mate.
Damian: Thanks, Kevin.