The new Sydney: Unlikely city crowned Australia’s hottest property market

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Within hours of being enlisted to sell a modest three-bedroom home recently, real estate agent Paul Curran had found a buyer for it – an investor from thousands of kilometres away, who snapped it up sight unseen.

So hot is the Perth property market right now that cashed up buyers from the east coast are inundating local realtors, desperate to splash money on bricks and mortar in the west.

Mr Curran, director Raine & Horne Rockingham in the capital’s southwest, said about 60 per cent of sales in his patch are going to investors outside Western Australia.

And the majority of those properties are being bought without ever being physically inspected.

“[There has been] a surge in buyer’s agents on the hunt for Perth properties for their eastern states clients, seeing many homes sell in record time frames,” Mr Curran said.

About 30 minutes down the road, Raine & Horne Mandurah principal Peter Vetten said a growing number of his properties are selling off-market.

That is, they’re being snapped up – mostly by interstate investors or their representatives on the ground – before anyone has a chance to walk through them.

“They’re essentially being sold prior to open houses,” Mr Vetten said. “If the prices are reasonable and within the appropriate range, they’re selling rapidly.”

New data from the Australian Bureau of Statistics shows 34.6 per cent of all new home loans taken out in WA in the past year were by investors.

Strong momentum in the market has seen prices surge, with few signs of a slowdown any time soon.

Extraordinary price growth

The latest PropTrack Home Price Index shows Perth home values have surged by a staggering 18.6 per cent in the past 12 months – the highest rate of growth in the country.

That’s more than double the annual price increase recorded in Sydney, traditionally Australia’s hottest market, of 8.11 per cent in the year to March.

PropTrack senior economist Eleanor Creagh said the WA capital has now posted 20 consecutive months of price growth, with a current median dwelling price of $660,000.

“Record low supply amid strong buyer demand has resulted in a sellers’ market,” Ms Creagh said.

According to the Real Estate Institute of WA, its data shows the median house price in Greater Perth is currently sitting at $620,000 while the median unit price is now $420,000.

That’s a world away from where values were not long ago.

Across all property types, houses and units combined, research firm CoreLogic reports prices have skyrocketed by 56 per cent since the onset of the Covid pandemic to hit $703,000.

A standard dwelling in Perth now costs about $252,000 more than it did just four years ago.

Despite that, the city remains relatively affordable compared to its east coast counterparts, which experts say is part of the allure for interstate investors.

Momentum Wealth founder Damian Collins said an average of 34.5 per cent of a household’s income is required to meet mortgage repayments on a WA home.

That’s significantly lower than the 56 per cent needed for home loan repayments in New South Wales, 45 per cent in Victoria, and 42 per cent in Queensland.

“This affordability is a key factor in the state’s real estate dynamics,” Mr Collins said.

That relative affordability isn’t just drawing the focus of investors from out of state, but also those looking to resettle on the west coast.

In the 12 months to September 2023, WA’s population grew by a whopping 3.3 per cent – the highest rate in the country.

Data shows more than 95,000 people migrated to WA from interstate and overseas in the 12 months, with few signs its popularity is waning.

“This growth, driven by strong demand for skilled workers and relatively affordable housing compared to other capital cities, is expected to continue,” Mr Collins said.

The state’s unemployment rate of 3.6 per cent is the lowest in the country, with a critical shortage skilled labour meaning there’s plenty of work on offer.

Last month’s ABS population data shows “extreme” trends in both interstate and overseas migration in WA, CoreLogic director of research Tim Lawless said.

“Net overseas migration to WA was running well above average at 18,122 in the September quarter of last year, up from a decade average of 4,639 per quarter,” Mr Lawless said.

Net interstate migration to WA was 2237 in the September quarter, he added.

Those figures, which he again described as “extreme”, had delivered a significant demand shock across WA’s housing markets.

Not enough new homes

A critical shortage of new supply is making matters worse, with the Housing Industry Association saying the past three years have been “as challenging for the home-building industry as any time in the past 40 years”.

“Material and labour availability challenges, well documented price rises, shortages of skilled workers, global conflict, and rising interest rates are just a few of the challenges the home- building industry has been navigating,” the HIA’s WA executive director Michael McGowan said.

In a pre-state budget submission, Mr McGowan warned the lack of skilled labour meant the state was only capable of building 14,500 new homes per year.

A recent report by Housing Australia warned WA will have a shortage of 25,000 homes over the next five years.

“This shortage is only likely to see a further widening in the already highly constrained affordable rental market, creating further challenges for renters,” Mr McGowan said.

Renters being hammered

Perth currently has the lowest rental vacancy rate in the country of just 0.4 per cent, according to SQM Research. A vacancy rate describes the proportion of all leased dwellings in a city that are currently available on the market.

Economists typically consider a vacancy rate of two per cent or less to be a sign of a market in crisis.

The median weekly house rent in Perth is $781, which has leapt by 17.6 per cent in the past year alone, while the median weekly unit rent is $579, up 13.1 per cent year-on-year, SQM Research data shows.

Mr Vetten from Raine & Horne in Mandurah said conditions on the ground are bleak, with crowds of up to 60 people attending rental inspections each weekend.

“Within three or four days, we get at least a dozen applications, and it’s just a matter of cherry picking through them,” he said.

His colleague Susan Pitts from Raine & Horne Bunbury said average weekly rents of $550 per week weren’t deterring prospective tenants, with 40 groups commonplace at open homes.

In its pre-budget submission, the HIA said soaring interest rates and the cost-of-living crisis had seen demand for affordable rentals rise sharply.

“WA’s rental vacancy rate has hovered below one per cent for the best part of two years,” Mr McGowan said.

“This combined with a significant amount of ‘homes under construction’ demand has meant that the median rental price and the median house price continues to rise, placing significant cost pressures on many in WA.”

No signs of slowing down

Michael Yardney is a property investment adviser and the founder of Metropole Property Strategists and said Perth continues to be a “standout” market.

“The ongoing rise in values reflects a persistent imbalance between supply and demand,” Mr Yardney said.

“Demand is continuing to substantially outweigh supply, and this dynamic doesn’t look to be changing any time soon.”

Price growth shows “no signs of slowing down” anytime soon, he said.

That’s a view mirrored by economists, with Oxford Economics Australia forecasting Perth home prices to grow by 10 per cent over the course of this year.

The firm also expects values to increase by another 9.8 per cent in 2025, thanks to a worsening gap between supply and demand.

Mr Collins from Momentum Wealth also expects price to increase by about 10 per cent by the end of the year.

“In Perth, the property market has been moving at an unprecedented pace,” he said.

“Properties have been selling rapidly, with the average number of days a property is listed on the market before sale being less than two weeks for most of 2023.”

Economists at the major banks are just as strong with their outlooks, with Westpac tipping a 10 per cent increase in Perth median home prices this year, while NAB expects a 9.9 per cent increase and ANZ expects somewhere between seven and eight per cent.

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