Often overshadowed by Sydney and Melbourne, Perth holds its own as an up-and-coming hot property investment destination especially for those with Asian ties.
Recently declared as one of the world’s most “liveable” cities, Perth is becoming increasingly popular as an investment destination. Whether it’s the pleasant Mediterranean climate, perfect for those seeking an active, outdoor lifestyle, or the strong economic fundamentals, Perth is investors’ top next investment destination ahead of both Melbourne and Sydney. One of the key drivers is the growth in Asian student numbers.
There are several factors that will continue to make Perth a highly sustainable, high-yielding and capital positive investment for property investors and Perth property developers. With foreign investment in the Perth property market rapidly growing, the falling Australian dollar will encourage even more investment in the market from overseas investors looking for a slice of capital growth and yield.
The falling Australian dollar has resulted in Perth properties becoming more affordable. In fact the low dollar together with the low interest rates have seen Perth’s property market move from a fairly valued to an undervalued market in terms of income and buying power.
Why Perth?
The Western Australia state government has committed more than AUD23 billion in infrastructure spend over the next four years which will transform the Perth landscape and enhance further the liveability of Perth and its status as a world class city.
Projects include:
- New Perth Stadium
- Perth City Link
- Elizabeth Quay
- New International Airport
- Expansion of Crown Casino
These projects will bring world class events to Perth and increase tourism activity which will also provide the impetus for greater job creation and the need for dwellings. The inner city of Perth will become a preferred destination and a place to work, rest and play.
The significant capital expenditure in the mining sector within WA alone totals more than AUD220 billion forecast over the next five years, including AUD124 billion committed or under construction and AUD56 billion planned. This is in addition to the AUD200 billion already spent in the last five years which saw the WA economy expand significantly. In fact, the WA economy has more than doubled over the last decade. Western Australia is now home to leading resource companies such as BHP Billiton, Rio Tinto, Chevron and Woodside.
A number of Asian investors are attracted to Perth due to its climate, lifestyle, education system and proximity to mainland Asia. Perth is in the same time zone and within close flying distance to most major cities in the Asian region. The most Western-located city in Australia is also renowned for having some of the best schools in the country.
All these factors play a part in drawing Asian investors. Parents want to send their children to Perth for education purposes and many end up purchasing a property for their child to live in while they are studying.
A further indication that Perth is maturing into a major city is the opening of a number of new hotel chains including Ritz Carlton, Westin, Crown and Intercontinental; giving greater and better accommodation choices.
Perth’s retail scene is also evolving, with over AUD2.5 billion being spent on expanding major Perth shopping centres in the next three years. These expansion projects are in large part being undertaken to accommodate international retailers looking to call Perth home. Zara, Topshop, H&M, 7-Eleven and Williams Sonoma are new tenants to Perth in the last six months. Global retailers such as Costco, Sephora and Uniqlo are expected to open stores here by the end of next year. There’s no doubt the retail and dining experience offered in WA is on par with any other Australian capital city.
Apartment is top choice
There has been an increase in the number of owner occupiers purchasing properties over the last 12 months, particularly in the apartment market. As apartment style living gains popularity due to its proximity to amenity and employment opportunities, people have chosen to compromise on size for location. Furthermore, there has been a number of down-sizers in this space, selling their large 4-bedroom and 2-bathroom homes on large land holdings and buying a more affordable and practical space. The money that is left over can then be used to enjoy their years in retirement while also helping fund their retirement which was affected during the GFC (Great Financial Crisis).
As the idea of being able to lock and leave to enjoy the outdoor lifestyle and amenity afforded by inner city apartment living grows more appealing, Perth is also seeing a shift towards more apartment living that most major cities around the world have already experienced.
With rentals still returning higher than the interest rates achieved in banks, the investor market remains dominant. However, investors are now considering a number of factors, including the quality of the development and the developer. The growing trend in apartment living has seen a number of new developers come into the market. Investors remain cautious on this front as their money could be tied up for years without ever getting the end product. As such, developers with a proven track record are worth their weight in gold and are top consideration for this class of purchasers.
Optimistic numbers
While rental yields peaked in 2013 due to an undersupplied market, the current returns remain above longterm averages. The facts are as follows:
- Average returns for inner city products are currently 4.3%, above the 4% long-term average.
- Average returns are well above current interest rates being offered by the banks as the cash rate is at alltime lows.
- Apartment products in the inner Perth precinct are returning yields of 3.7% to 5.1% depending on the suburb.
- While increased supply levels have placed upward pressure on vacancy rates, the current city vacancy rate remains in the 3%-4% range.
- This means that 96%-97% of the market is occupied, leaving the lower quality stock vacant or having to attract lower rental rates.
As a result, current prevailing market conditions are signalling that it remains a great time to purchase an inner city property for investment.
Conclusion
The improving market sentiment will increase 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 the prospect that interest rates are near the bottom of the cycle, it is the right time to take advantage of the historical low cost of money and make Perth your next investment decision.
Andrew Bouhlas, the General Manager (Acquisitions & Development) in Psaros, has a wealth of experience across all property sectors.