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Property investors might be missing out on growth opportunities by overlooking Perth as their next investment destination.
CoreLogic Australia research director Tim Lawless said mortgage commitments data showed that Western Australia has a lower portion of investment activity despite its capital city having the best investment fundamentals.
“To me, the fundamentals suggest it is a location that presents one of the best investment opportunities around the country; and yet we're not seeing investors very active in that marketplace,” he said.
Reasons why investors should consider investing in Perth
Mr. Lawless identified several reasons why property investors might be neglecting to include Perth in their considerations for their next investment destination.
- Perth has the highest gross rental yields among the state capitals at 4.9%
- The city’s vacancy rate was at 0.7%
- Population growth in Perth is at 2.3%
- Perth has a lower median price, indicating a more achievable entry point relative to other bigger cities
- Annual gains in median prices and rents in Perth are higher compared to its bigger city counterparts
Why investors are overlooking Perth
Data from the Australian Bureau of Statistics (ABS) showed that New South Wales received the bulk of interest, with investors accounting for 38% of the value of new mortgage lending across the stated.
Meanwhile, only 28% of new mortgage commitments in Western Australia were from investors.
Overall, the share of property investors actively participating in Australia’s housing market has reverted to its long-term average, accounting for 34% of mortgage demand.
Mr Lawless said investors are exhibiting greater activity in New South Wales, where rental yields are the lowest among all states, and specifically in Sydney, where they are the lowest among all capital cities.
“The buy-in price is significantly higher, and arguably the prospects for capital gains could be less significant when you consider the affordability challenges that remain apparent across the Sydney marketplace,” he said.
This, for Mr Lawless, makes it hard to explain why investors are not looking at better option like Perth, especially when looking at market fundamentals.
“Perhaps there is a level of herd mentality playing out, where more investment is flowing into the Sydney or New South Wales market despite the unaffordability and low rental yields,” he said.
Another reason could also be the significant volatility of the Western Australian housing values during and after the mining boom.
Following a surge from 2004 to 2014, Perth home values experienced a significant decline of 20% between 2014 and 2019, attributed to weak economic conditions and negative population growth in the region.
“The Perth market could be a strong option for investors, as is the southeast Queensland housing market, due to strong fundamentals including higher yields, a lower buy-in price, and a rapid rate of population growth that is driven by a combination of overseas and interstate migration,” Mr Lawless said.
“Both Western Australia and Queensland have a positive rate of interstate migration which better aligns to purchasing demand, as opposed to overseas migration that tends to be more aligned with rental demand.”
The table below provides a quick glance on how different market fundamentals are in Perth versus Sydney:
|
SYDNEY |
PERTH |
|
|
Median dwelling value |
$1,073,924 |
$588,454 |
|
Change in value: Month |
1.7% |
0.9% |
|
Change in value: Quarter |
4.9% |
2.8% |
|
Change in value: Year |
-5.1% |
2.5% |
|
Median dwelling rent |
$733 |
$599 |
|
Vacancy rate |
1.5% |
0.7% |
|
Annual change in rent |
12.9% |
13.4% |
|
Gross rental yield |
3.5% |
5.3% |
|
Dwelling value to income ratio |
8.8 |
5.5 |
|
% of income required to service a new loan |
51.6% |
32.2% |
|
Annual population growth |
1.7% |
2.3% |
|
Source: CoreLogic, ABS, ANU. Dwelling values and rents as at June 2023, dwelling value to income ratio and income required to service a loan as at March 2023, population growth as at December 2022. |
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