With WA’s extended border closure putting approved developments on the backburner, and removing hopes for a sudden housing supply increase, could Perth real estate values see an unexpected boost?
Perth was looking forward to a pipeline of stunning and highly priced apartment developments totaling $2.2 billion, the impact of which would spark jobs growth and alleviate some of the strain on a pressure cooker housing market in the west. We are talking around 10,000 apartments. But these DA-approved developments have now been put on hold.
Mark McGowan’s move to extend WA’s border closure, keeping the already isolated state further distanced from the rest of Australia, has had some very real consequences for the building market.
Felt heavily by the local property, construction and development sectors, there’s already a lack of labor to service those existing residential developments, not to mention those in the queue. Building materials are struggling to fit through the tiny logistical window provided by the Premier, meaning any slight ripple experienced by logistical companies becomes a wave of delay for those developers hoping to complete their projects in a reasonable timeframe.
But the pause to these major apartment developments also indicates a potential housing shortage crisis in the coming years. That’s the word from the Property Council of Australia (PCA), the country’s leading real estate body, who are warning that health concerns should not be the only consideration in the state government’s COVID-19 plans.
So then, supply is taking yet another battering while demand for a roof does not seem to let up. What’s this going to do to property values?
Bubbling demand and dwindling supply have been the major ingredients leading to WA’s (and indeed the country’s) once-in-a-decade real estate environment. Low interest rates have of course helped boost property values, but the economic fundamentals of demand and supply have done most of the heavy lifting.
The approved apartment developments were to alleviate home ownership and rental issues for over 10,000 households. Given we would have seen a large influx of interstate residents looking for a home (and where better than Australia’s most affordable city, Perth?), which would have kept the heat behind demand, these apartment developments would have meant near-instant relief on the market’s supply constraint. Not anymore.
But keep in mind, the fuel for property value increases is demand. Can we expect demand to continue?
We think so.
Yes, a potential 2022 interest rate rise is on most property owner’s lips, but it’s debatable how much a cash rate increase will take demand off the boil. After all, rates are at record lows, so several shifts will likely be needed before borrowing costs begin to outweigh potential yield and capital growth opportunities, and thus significantly reduce participants in the market.
And those investors with a finger on the pulse know there is value yet to be squeezed from Perth’s property market.
Perth’s current 10-year compound growth rate (a metric used to explain the capital growth of residential property over a given period) is sitting at 1.58 per cent. But its 20-year compound growth rate is forecasted at 6.33 per cent. This means the long-term bias for growth is trending upwards, bolstering the argument for very large property price increases to come.
Perth hasn’t yet hit the ceiling in this cycle, according to many experts, with 2022 tipped to see a 5-per cent to 10-per cent increase in dwelling values.
No matter the immediate prospect of a value increase from a border-triggered supply shortage, Perth appears to be a long-term viable option for investment, particularly for those investors looking to achieve significant capital growth. Investors who know where to look will understand this and continue to search for (and find) opportunities in WA.
But regardless of the future of property values, there’s another learning that should be iterated here. And that is there should be further consideration of the impact a prolonged border closure will have on WA’s reputation as a great place for investment.
While us experienced WA property investors are fully aware of the prosperity the west can provide, the overseas and interstate capital, which can assist in sparking economic growth, may take a hit if there is no opportunity for those foreign and east coast players to enter the state and hunt down their next investment.
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