Perth Property Forecast 2020 – a Good News Story
This article will discuss, for the first time in many years, a positive Perth property forecast. 2020 is going to be the year that the Perth property market starts to recover. For property developers, this is good news. Perth has been hit by nearly a decade of negative growth in the housing sector, with some areas falling by 20% in value or more. It has been very hard to get excited about producing any sort of product to supply the market with for some time, with consumer confidence and money supply at all time lows.
Since December however, every month, including February, has seen positive growth overall (albeit in small percentages). This is particularly good news as these months over the holiday season are traditionally very slow – if ever there is a time where activity was at risk of going backwards even further it is over the Christmas period.
Overall value growth in Perth’s residential property market was up 0.3% in February, and 0.4% overall for the quarter. Growth was not recorded in all areas however, with only Perth’s inner metro and southwest regions recording sustained increases. Green shoots are showing- new building approvals and loan underwriting activity is also on the up, for the first time in nearly 5 years.
Although the market is unlikely to race away in a hurry; the darkest days appear to be behind us.
Key points – Perth Property Forecast 2020
Some analysts are tipping significant growth for the upper tier of the residential housing market in Perth of 4-6% this year. This will be for properties in the $750 000 to $1 200 000 mark. These are higher value, inner metro suburbs with good amenity, stock scarcity and plenty of available buyers. The affordability parameters for this part of the market have never been better: there is an undersupply of stock and plenty of prospective owner occupiers with cash or serviceability to make acquisitions of product in these areas.
This is where FLYNN sees substantial development opportunity for the next 18-24 months, as this will be the most buoyant and fastest recovering segment in the Perth market. With a higher price entry point to acquire good development sites in these areas in Perth (typically more than one million dollars) it is actually easier to get better value for money and negotiate, as there a re far fewer prospective purchasers for the development sites. FLYNN has formulated an entire development strategy to target this market, with a key team of builders and consultants.
This is our “Blue Chips Development Program”. To learn more about the strategy and getting involved in the program, please get in touch with us.
The entry point of the market, being low income or first home buyer segment (property less than $500 000), will still see some pain for the rest of 2020 in our opinion. Developing property to supply more to this market segment should be avoided for at least the next 12 months. There is still oversupply in this sector, and affordability issues for owner-occupiers in this segment. This is fuelled mostly by under or unemployment, stagnant wages, high personal and/or household debt, and stringent means testing by lending institutions for the underwriting of mortgages to potential purchasers in this market segment.
The rental vacancy rate in Perth is very low, around 2.5%. Whilst this typically is an indicator the the market is about to turn, we believe a large part of this soak up in rental stock is because the bottom end of the market cannot get the loans they are after to buy or build houses in the current lending climate. It may, therefore, take same time before this market segment is capable of and confident enough to re-enter the market in force.
Forecast for 2020 Summary
Whilst a key housing growth indicator: money supply, has some improvement to go in Western Australia, other performance indicators such as market confidence, affordability and supply an demand factors have moved into positive territory. From the standpoint of investment value Perth has never looked better.
The Perth Property Forecast 2020 is a good one. FLYNN has already assisted smart money from Malaysia, New South Wales and Victoria to acquire development sites in WA this year. If you would like to discuss development strategy, site acquisition and feasibility studies, to get started this year yourself, please get in touch with our team to book a consultation.