Perth’s property market has emerged as one of the fastest growing major markets across Australia, and a unique combination of factors are creating a time-limited opportunity for buyers to benefit from an ideal investment play.
So, what three factors are creating these opportunities? And how can investors leverage the full potential of these market conditions?
Relative market affordability
Despite growth in recent months, Perth is still offering incredible affordability, especially when compared to other markets around Australia. The Real Estate Institute of Australia’s Housing Affordability Report for the December Quarter of 2020 shows that Western Australia continues to be one of the cheapest markets to purchase property with only 24.8% of family income required to meet loan repayments. This contrasts with the New South Wales and Victorian markets which require 44.6% and 35.6% of family income respectively.
With the Reserve Bank of Australia dropping the official interest rate to 0.1%, there has never been a cheaper time for borrowers to service the cost of their debts. Most financial institutions and banks are offering interest rates hovering around the 3% mark, further lowering the barrier of entry into the property market.
Forecast growth will lead the nation
Not only is Perth’s property market offering greater affordability than those on the eastern seaboard, it is also forecast to experience strong growth in 2021. SQM Research’s Housing Boom and Bust Report 2021 predicts the Perth market to grow 8-12% – above the national forecast of 5-9%. This projected growth is driven by low stock levels, increased buyer demand and a strengthening economy boosted by the mining sector, with government stimulus measures and sustained low interest rates also supporting the uplift in market activity.
This positive outlook is also shared by the Real Estate Institute of Western Australia who are forecasting Perth will experience a rise in median house price of up to 10% across the same time period.
For interstate investors who have seen their home markets perform strongly in recent years, these factors create an ideal opportunity to leverage built-up equity to capitalise on the respective growth cycle in Perth while also diversifying their property portfolio.
Strong rental yields
As Perth’s sales market begins to strengthen, so too does the rental market, and this is creating a unique combination of factors, allowing investors to benefit from both growth and strong rental yield. Driven by an undersupply of rental stock and strong demand for what is available, these factors are combining to create perfect conditions for investors to also benefit from a rental yield play. Investment properties in Perth are outperforming their eastern states counterparts with CoreLogic data for February 2021 highlighting gross rental yields of 4.3% for houses in Perth, compared to 2.6% and 2.7% in Sydney and Melbourne respectively.
In practice, our buyer’s agents are seeing some great opportunities to secure properties with yields at 5% and higher, with a recent client purchase in Bibra Lake in Perth’s southern suburbs (bought by our buyer’s agents for $461,000 in November) offering a rental yield of 5.6%.
This unique alignment of factors is providing buyers with a window of opportunity to enter the Perth market in prime conditions, with potential to benefit from both a rental yield and growth play. However, with prices already rising across both the sales and rental market, investors who enter the market sooner may be in a better position to capture the full potential of further improvements.