Where are the investors?

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What does the Perth market have in stall for property investors in 2021 and into 2022?

They say that the great Australian dream is owning a house (maybe with the white picket fence). Well in WA it seems that the great Australian dream is having a number of investment properties that are negatively geared saving you tax off your FIFO income, that are also growing in value turning you into a multi-millionaire!

House picket fence

Unfortunately, the last few years in WA has not been kind to some small-time property investors. There are many stories of people who bought investment properties at the top of the boom only to be left with mortgages bigger than the value of their assets. For most of 2019 and early 2020 the monthly median sale price for homes in Perth was hovering around the mid to high $400’s.

But… the post covid heat that is happening in the Perth property market is changing that (and quickly. According to Landgate, in March 2021 the median sale price for homes in Perth was $575,000. Looking at the the latest graphs published by REIWA, the trend in the median price is increasing at a very rapid rate. According to CoreLogic Perth dwelling prices are up 4.6% this calendar year so far.

So with such a hot market in both property prices and rental returns what are the investors doing?

Investors are in the market to make money!!! So they want to buy low, get a good rental return, and sell high.

The current challenge for investors looking to buy is that the high demand for properties is inflating prices and there is no certainty about how long prices will continue to climb. The other challenge facing investors who are looking to sell their investment properties and cash in on the price growth, is that most of the buyers in the current Perth market are looking for somewhere to live and want to move into the property straight away, they are much less likely to want an investment property with a long term tenant.

We recently heard a story from a seller who had their property on the market for over 3 months, which is a very long time considering the median number of selling days for the March quarter in Perth was just 16 days. The problem, the property had a tenant in it. They were a good tenant, but they had a lease and a new owner could not move in instantly. At the end of the lease the owner did not renew, the tenant moved out and the property sold within days.

Investors can be very confident that if they do buy a property they will get a tenant very quickly and get a good rate of return. As I write this, the residential rental vacancy rate in Perth is the lowest it has been since the boom of 2012, currently sitting at 0.7%.

The cost of renting a house in Perth has gone up by 12% in the past 12 months and keeps climbing, which is only beaten by the rise in Darwin (a crazy 27%), and Perth apartment rents are up over 9%. After the end of the state governments rental freeze we have seen huge increases in rent putting real pressure on WA renters.

But even though investors can be confident about finding tenants at good rental prices, the fear of buying high is still very real, and thus we think that many investors will most likely stay out of the Perth home market until they can be more certain about the long term growth of their properties.

Perth Apartments

What about apartments and villas?

Smaller villas and apartments could become a better option compared to houses for investors in the midst of the Covid recovery. With demand for housing high in Perth, people who may have preferred to live in a home may be forced to consider apartment living.

Vacancy rates for apartments have fallen dramatically just like those of detached dwellings, so there is strong demand from renters, however in comparison there is not quite as much demand from purchasers, so apartments and villas present a good opportunity for investors.

The government has put in place a lot of incentives for individuals to build or renovate and there are a lot of incentives for first home buyers, but developers have been left holding a number of apartments that if they sell to first home buyers there are great rebates, but those same apartments cost so much more for investors.

At the Urban Development Institute of Australia even in March, it was stated that only 28% of the apartments purchased in Perth in 2020 were purchased by investors. Perth currently has a number of unsold apartments that cold present a great opportunity for mum and dad investor.

We will wait and see as the world continues to deal with the Covid crisis.

Max
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