The most affordable capital city houses in the country are enjoying ultra-low interest rates, improved economic conditions, and strong government incentives led a strong recovery of the property market.
As projected, the Western Australian housing market has recovered well with substantial increase in housing prices, with capital growth of 3.9 per cent for houses over the past 3 months. There has been a noticeable improvement in buyer confidence resulted in improvements in housing finance.
Strong government support was a key driver in the improved economic conditions, improved consumer sentiment, and, finally, renewed demand for housing.
A sustained weakness in the housing market since the end of the mining boom has led to continued price reductions, that made Perth the most affordable capital city housing market in Australia with a median house price of $475,000.
The combination of the improved economy, government incentives, the recent reductions in interest rates, (with some lenders offering home loans with an interest rate below the 1.80% mark), make WA substantially more attractive market, particularly for owner-occupiers.
For owner-occupiers with interest-only loans, ultra-low interest rates make it typically cheaper to buy than to rent a house from a cashflow perspective in all areas of Perth.
The anticipated price increases of this very affordable market are being now delivered with housing prices are projected to increase over the next 12 months in the range of 6 to 10 per cent, particularly for the mid- and high end of the market.
Popular areas that have shown resilience in the past 12 months, such as Perth-Inner and Perth-North East, are highly likely to enjoy stronger demand in 2021.
However, at the affordable end of the market, price increases might be contained to 4-8 per cent due to the additional first home buyer grant and stamp duty rebate outlined above.
Those generous government grants are likely to increase the supply of new affordable houses, applying some downward pressure on house prices.
In addition, the demand for housing in most regional areas in WA is relatively low. In the absence of strong growth driver and with sufficient supply of housing, the capital growth in those areas is likely to be modest.
Lastly, it should be noted that without structural change to the WA economy that will deliver a large number of high paying jobs and substantially increase population growth, only a moderate price growth is projected over the long term.
Units, particularly rental apartments in high supply areas, carry a higher level of risk.
Rental apartments continue to carry a higher level of risk of deliver poor or negative capital growth, due to the combination of oversupply, lending restrictions and low demand as they are generally not attractive to families or owner-occupiers. The Perth – North East area has the highest rate of unit oversupply in WA with 724 units in the pipeline (a 6.6 per cent uplift to the established stock).
COVID-19 has further increased the risk associated with rental apartments, with investor demand likely to shift towards detached houses.
For the foreseeable future units in WA, particularly new apartments in ‘danger zone’ areas (such as Perth 6000), carry a higher level of risk.