Why Perth might be the new hot property market29 January 2018
Article by: Ross Greenwood
Source: Nine News, 29 January 2018
The latest quarterly state-of-the-states report by the Commonwealth Bank and Commsec tells you plenty about the place you live in, and the atmosphere for work and doing business.
The survey amalgamates nine key economic indicators including retail sales, economic growth, population, business investment, housing construction and house prices.
There is little surprise that New South Wales still leads the nation. It has seen the greatest job creation, the strongest housing markets and therefore enormous amounts of new investment.
From a national perspective, a strong New South Wales is good for Australia as it has the greatest population of all the states.
But that is slowly changing. Victoria has the strongest population growth which in turn fosters a strong demand for housing that will continue.
It also means that job creation in Victoria will continue to grow.
The real hint for households from this and other surveys is that the so-called downturn in housing markets might be exaggerated.
There is seemingly no overall collapse around the corner, though there will be pockets of weakness (think large-scale apartment developments built on the presumption of ongoing strong Chinese demand).
The reason is that the rise in population will continue to create working-class people who will demand more housing, and new housing.
And though the debate about whether Australia can withstand a fast-growing population will not go away quickly (the answer, of course, is to build newer and bigger infrastructure to cope with the rising capital city populations) the fact is, to date, states and capital cities have benefited from it.
The one clear message that comes from this survey is that Western Australia remains at the foot of this table, easily eclipsed by the eastern states.
The big question is whether it gives a further hint that Western Australia might be the best housing market in the country, in terms of affordability and capability of growth.
Note that West Australian house prices have fallen for pretty much four years now, as mining investment fell off a cliff and employment opportunities evaporated.
And this might be the most valuable hint from the whole survey. If you look at the latest CoreLogic monthly data, Perth house prices average $484,562 compared with Melbourne’s $832,735 and Sydney’s $1.05 million. The prices fell 2.6 percent in 2017.
The oddity of the Perth market is that rents are clearly weaker than in other states. The yield on a Perth house is 3.8 percent – compared with 4.9 percent in Hobart, 5.7 percent in Darwin and 4.1 percent in Canberra and Brisbane. This is a direct reflection of the affordability of renters, weak wages growth and higher unemployment.
The key to Perth, and the turnaround in its fortunes, is to watch the iron ore price (now up from lows of around $US31 per tonne in early 2016 to more than $US76 per tonne today) and the demand for labour
In 2017, 50,000 more people were employed in Western Australia to a total 1.34 million, and unemployment fell by about 9000.
More people employed means more people capable of paying higher rents or buying houses.
If there’s one market where I think there’s a prospect of growth, it’s Perth.
That said, I would always keep watching those iron ore prices. History tells us Perth is highly cyclical, and reliant on the commodities cycle.