Inner Perth Residential Market Report

Transcription

1 Inner Perth Residential Market Report MARCH QUARTER 2014

2 Inner Perth Residential Market Market Highlights While Western Australia will experience slowed short term growth as the state transitions from its mining construction phase there is a clear pathway forward. The output of the Western Australian economy still remains approximately 30% greater than the decade average level of output. Dwelling starts across the country are above decade averages for the most part with Western Australia some 23.4% higher than the average. REIWA figures show the March quarter median house price has now reached approximately $550,000, which represents a 2.8% increase over the quarter. Housing commitments in WA are 10% above decade averages and more significantly in the first quarter of 2014, have shown an increase of 12.2% when compared to the same time last year. INDICATOR OBSERVATION TREND CPI Growth* 3.10% SFD Growth* -2.70% Unemployment Rate 4.90% Official Cash Rate 2.50% Median House Price $545,000 Population Growth* 3.10% Residential Vacancy 3.80% Rental Yields 4.90% Building Approvals* 26.20% Retail Turnover* 1.60% Consumer Sentiment 99.7 Business Confidence 6 Exports* 11.30% Avg. Weekly Earnings* 4.20% * Note: These are annualized figures EDGE BY PSAROS Edge by Psaros includes one and two-bedroom apartments all with large balconies and open living spaces as well as solid bamboo timber floors. Edge by Psaros is the company s largest development to be constructed in its history and has recently won an International Property Award in the category of Residential Development for the Asia Pacific Region The International Property Awards are open to residential and commercial property professionals from around the globe. Celebrating the highest levels of achievement by companies operating in all sectors of the property and real estate industry, an International Property Award is a world-renowned mark of excellence. MARCH QUARTER

3 The West Australian Economy There has been uncertainty surrounding the state s economy over the last 12 months and while Western Australia will experience slowed short term growth as the state transitions from its mining construction phase there is a clear pathway forward as other sectors show signs of development and growth for the State s economy. Western Australia continues to be the best-performing economy, according to CommSecs Sate of States Report. Western Australia leads the way on retail trade, population growth, and housing finance, and is the second strongest on economic growth and construction work done. Project spending drives the big cycles in WA s economy, and it is no surprise that the transitional shift from construction to production has created a down-tick in short-term growth. The output of the Western Australian economy still remains approximately 30% greater than the decade average level of output. This remains second only to the Northern Territory (Figure 1). The Chamber of Commerce and Industry of Western Australia has revised down their forecasts for economic growth from 5% to 4.5% for 2013/14 and from 4.75% to 4.5% growth in 2014/15 as a result. These figures are strong by national average comparisons. Unemployment levels in WA continue to trend below the national average and have returned to below 5% in March 2014 (Figure 2). While the unemployment rate has fluctuated in recent times it must be remembered that the long term average (20 years) unemployment rate in Western Australia is 6.2% suggesting the current economy remains in a healthy position and businesses remain confident about the future prospects of the state. Further evidence to support the fact that the WA economy remains stable is the level of exports, which continue to increase with the first 3 months of 2014 showing a 11.3% increase in annualised terms when compared to the same period 12 months ago. Of particular interest is the large increase in export levels to China and Japan (Figure 3). Exports have increased by 32.8% and 9.2% respectively to these two key trading partners in annualised terms. In the past 12 months exports to China totaled almost $70 billion despite the fact that growth in China slowed to below 8%. Figure 1: Economic Growth Nthn Territory West Australia Queensland ACR NSW Victoria South Australia Tasmania % Change on Decade Average (Dec qtr) Source: Australian Bureau of Statistics, Cat No , CommSec Figure 2: Unemployment Rate 8% 7% Unemployment Rate 6% 5% 4% 3% 2% Apr-2006 Sep-2006 Feb-2007 Jul-2007 Dec-2007 May-2008 Oct-2008 Mar02009 Aug-2009 Jan-2010 Jun-2010 Nov-2010 Apr-2011 Sep-2011 Feb-2012 Jul-2012 Dec-2012 May-2013 Oct-2013 Mar-2014 Australia WA VIC NSW QLD Source: Australian Bureau of Statistics, Cat No Figure 3: International Trade - Exports (top 5 by destination) $80,000 $70,000 $60,000 $50,000 $ Millions $40,000 $30,000 $20,000 $10,000 $0 China Japan South Korea Singapore Taiwan Current 12 months Previous 12 months Source: Australian Bureau of Statistics, Cat No The report analyses eight key indicators economic growth, retail spending, equipment investment, unemployment, construction work, population growth, housing finance and dwelling starts. MARCH QUARTER

4 The West Australian Economy Population growth in Western Australia (Figure 4) continues to be the strongest in the country and well above the national average. The 3.1% growth rate is 21.4% above the decade average and represents an increase of approximately 76,000 people over the last 12 months. While private capital expenditure was lower in 2013 (Figure 5) when compared to 2012, the amount of new investment still remains significantly higher than levels seen in 2012 and And while new investment has slowed in the mining sector, other sectors of the economy are starting to show signs of growth. There still remains significant amounts of expenditure required on committed projects which will continue to underpin the Western Australian economy. Fluctuations in a number of key economic indicators continue to have a dampening effect on consumer sentiment and while most signs remain positive, consumers remain cautious. That being said, retail spending in Western Australia is just over 20% above decade averages despite being relatively flat in recent times (Figure 6). Solid population growth, solid turnover of existing homes and higher wages underpin the relative strength in consumer spending. Figure 4: Population Growth WA ACT QLD VIC NT NSW SA TAS Annual percentage change Source: Australian Bureau of Statistics, Cat No Commsec Figure 5: Private New Capital Expenditure Actual Expenditure (millions) $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ Mining Manufacturing Other Source: Australian Bureau of Statistics, Cat No , CommSec The fundamentals of the Western Australian economy remain sound and with more positive economic conditions beginning to prevail globally, the outlook remains cautiously positive. Figure 6: Retail Trade and Consumer Sentiment Consumer Sentiment Index % 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Retail Turnover (% Change) Consumer Sentiment (LHS) Retail Turnover Growth (RHS) Source: Australian Bureau of Statistics, Cat No , Westpac Consumer Sentiment Survey MARCH QUARTER

5 Perth Residential Market Overview The Perth housing market has been gaining significant momentum in recent times as buyers take advantage of low interest rates, however housing market conditions are forecast to wind down later this year as affordability constraints and low rental yields dampen market conditions. Notwithstanding this Western Australia continues to play catch-up on the supply side and as such the outlook for housing construction continues to strengthen. In fact, dwelling starts across the country are above decade averages for the most part with Western Australia some 23.4% higher than the average. The Housing Institution of Australia has forecast an additional 26,600 dwellings will be delivered in 2014 across Western Australia (Figure 7). Higher levels of activity together with greater levels of competition and more purchases of dwellings close to the city have seen the median house price increase over the first quarter of REIWA figures show the March quarter median house price has now reached approximately $550,000 (Figure 7), which represents a 2.8% increase over the quarter and is higher than the $515,000 median house price during the boom. Rental rates have started to feel the pressure of rising vacancy rates and have fallen by an average of 3.8% across the Perth metropolitan area (Figure 8). One of the lead indicators for real estate is the level of housing finance commitments which has been on the rise in Western Australia in recent months. Housing commitments in WA are 10% above decade averages and more significantly in the first quarter of 2014, have shown an increase of 12.2% when compared to the same time last year (Figure 9). An indicator that shows a slowing trend is the number of listings with REIWA data showing an increase of 1,600 properties over the March quarter to a total of about 10,000 properties (i.e. the long term average is 12,000 properties). Figure 7: Perth Median house prices & dwelling commencements Median House Price ( ooos) $560 $540 $520 $500 $480 $460 $440 $ * Perth Metro Area Source: Australian Bureau of Statistics: Cat. No Building Activity, Australia, Dec 2013, HIA & REIWA Note: The 2014 dwelling commencement is a HIA forecast Figure 8: Perth median weekly rentals & vacancy rate Median weekly rent Source: Real Estate Institute of WA Figure 9: Housing Finance Commitments Housing Commitments $550 $500 $450 $400 $350 $300 $250 $200 $150 $100 Mar-06 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Dwelling Commencements Sep-10 30,000 25,000 20,000 15,000 10,000 5,000 Median House Rent Median Unit Rent Vacancy Rate (RHS) Source: Australian Bureau of Statistics Cat. No Housing Finance, Australia Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar % 4.0% 3.0% 2.0% 1.0% 0.0% NSW VIC QLD SA WA TAS NT ACT Number of Dwellings Vacancy Rate $70 $60 $50 $40 $30 $20 $10 MARCH QUARTER

6 Inner Perth Apartment Market Demand for inner city dwellings has continued to place upward pressure on the median house price. The appetite from both investors and owner occupiers to be located close to their place of employment, public transport and amenity continue to drive property sales in the inner city. As Perth continues to mature and transform into a more global city the desire for inner city living should begin to gain further momentum. While demand has been relatively strong for inner city apartments over the last 5 years, the level of supply has been relatively subdued, averaging just over 500 new apartments over the last two years (Figure 10). There are a number of projects currently under construction which will come to the market over the next three years, however, the majority are pre-sold, so any notion that there will be a large number of unsold apartments in the city are misleading. As a matter of fact the vacancy rate in the Perth City is still tight (Figure 11) indicating that there is still a requirement for greater levels of supply. The current Perth City vacancy rate is in the order of 1.9% and has been relatively stable since A key trend that has started to emerge across the country is the compromise home owners are prepared to make in order for convenience. A lot of prospective buyers now compromise the size of the dwelling in order to be closer to amenity, hence the appetite for apartment product. This trend will gain further momentum over the next five years as the number of people living in Western Australia continues to increase. Figure 12 shows the current and projected average travel times that people will face as Perth s population grows and congestion on the road increases. Inner city living where the need for cars and travel is minimised will become a preferred living option for a number of people. Figure 10: Future Supply (Inner Perth Area) 2,500 2,000 1,500 1, Completed Under Construction Development Application Development Approval Proposed Source: Cordell Connect, ABS (SA3), Psaros Research Figure 11: Perth City Vacancy Rate 100% 99% 98% 97% 96% 95% * Occupied Vacant Source: SQM Research *Note: March 2014 Figure 12: Average Travel Times in Perth Metro Area 60 Avg. Travel Time (mins) Average Travel Time Average Peak Hour Travel Time Source: WA Business News, RAC (2013) MARCH QUARTER

7 Inner Perth Apartment Performance AVERAGE SALE PRICE Apartment prices in the City of Perth were relatively stable over the first three months of East Perth was the only suburb to experience growth of any significance with the average apartment price increasing by 2.3% on average. The average apartment price in the City of Perth increased marginally from $587,000 at the end of 2013 to $589,000. East and West Perth apartments are the most highly valued with an average price of $625,000. Northbridge remains the cheapest suburb with an average apartment price of $530,000. AVERAGE RATE PER SQUARE METRE While apartment values remained relatively stagnant over the first quarter of 2014, the value per square metre experienced 2.0% growth on average. The current price for apartment product in the inner city precinct ranges from an average of approximately $6,600 per square metre in Northbridge up to an average of $8,500 per square metre in Subiaco. MEDIAN WEEKLY RENTALS Despite increasing residential vacancy rates across the Perth metropolitan area having a dampening effect on rental levels, median inner city rents have been relatively resilient in the first three months of Across the precinct rents have fallen by 2.0% on average, however, some suburbs have even experienced some growth (i.e. Subiaco, West Perth). The average rental for apartment product in the inner city on average is now $525 per week. This is some 65% higher than the average rent per week in YIELD RETURN The continuation of record low interest rates has created an environment where purchasing your own property has become somewhat more affordable. This has contributed to a greater number of people potentially purchasing their own property rather than renting, and ultimately seeing the number of properties available to rent increasing. This has resulted in an increase in the vacancy rate and reduced the average rental levels, translating into lower yield returns. Apartment product in the inner Perth precinct is returning 4.5% (Figure 16) on average with assets in Northbridge returning the highest (5.1%) and those in Subiaco the least (3.8%). This remains higher than the 10 year average of 4.1%. Figure 13: Average Sale Price of Apartments in Perth City (LGA) Average Apartment Price $800,000 $800,000 $600,000 $500,000 $400,000 $300,000 $200,000 Source: RP Data, Psaros Research Figure 14: Avg apartment price (inner Perth precinct) rate per sqm Source: RP Data, Psaros Research Figure 15: Median weekly rent for apartment product Figure 16: Asset Yields Asset return per annum rate per sqm Median weekly rent $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $700 $650 $600 $550 $500 $450 $400 $350 $300 $ * Northbridge East Perth Perth West Perth * Leederville Northbridge East Perth Subiaco Burswood Perth West Perth * East Perth Northbridge West Perth Perth Subiaco Burswood Leederville Source: Real Estate Institute of Western Australia 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% * East Perth Northbridge West Perth Subiaco Burswood Leederville Source: Real Estate Institute of Western Australia, RP Data, Psaros Research MARCH QUARTER

8 Inner Perth Apartment Performance OUTLOOK Global activity has broadly strengthened and is expected to improve further in according to the International Monetary Fund, with much of the impetus for growth coming from advanced economies. Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies. The International Monetary Fund is forecasting global growth to be around 3.6% in 2014, and 3.9% in 2015 which is largely unchanged from previous forecasts, however, there has been a 1% increase in the growth forecast for advanced economies which are projected to experience growth of 2.25% in 2014/15. More importantly for WA growth in Asia is projected to remain steady at 5.4% in 2014 and 5.5% in External demand is set to pick up alongside the recovery in advanced economies, and domestic demand should remain solid across most of the region. This will provide the foundation for increased investment in Australia and more specifically Western Australia as our Asian trading partners continue to demand our natural resources. This will be a key driver in underpinning consumer and business confidence while ultimately flowing through to the economic prospects of the state. The improving global conditions and more certainty surrounding the health of the economy will encourage investment, resulting in jobs growth and higher consumer confidence. With improving market sentiment will come increasing demand across all industry sectors in particular the housing market which will place upward pressure on capital values. A total recovery in the housing market may not be too far away and with prospect that interest rates may begin to increase in the second half of the year the time to take advantage of the historical low cost of money may be running out. DISCLAIMER While Psaros (Property Group Pty Ltd) (Psaros) tries to ensure that the content of this information sheet is accurate, adequate, complete and up to date, it does not represent or warrant the accuracy, adequacy, completeness or up to date nature of the information provided. Psaros is not responsible for any loss suffered as a result of or in relation to the use of this information sheet. To the extent permitted by law, Psaros excludes any liability, including any liability for negligence, for any loss, including indirect or consequential damages, arising from or in relation to the use of this information sheet. Users should always confirm the accuracy of information (including but without limiting the generality of that, the availability of rebates) from another source before taking any action in reliance on it. MARCH QUARTER