Market Intelligence – What Now For The WA Market?

Federal Election

The Federal Election result has certainly been the talk of the National Media since the shock results began flowing through late on Saturday evening. Although there are still some seats in doubt in terms of which party will win, what is likely, is that the Liberal Party will form a majority government.

Regardless of which side of politics you support, this result, in our opinion is a big positive for the WA Real Estate market. The proposed changes to some legislation around Negative Gearing, Capital Gains Tax and a possible Inheritance Tax drove a lot of uncertainty into property Investors, likely Nationally as well.

So, now we have certainty around whom will govern for the next 3 years, everyone will just move forward with confidence in their Real Estate ambitions, the stability box is ticked.

Perth Sales Market

Perth was already experiencing positivity in market activity in what we have termed ‘Cluster Markets’. Large clusters of the Perth Metro Area have seen significant demand improvement, multiple offer situations and large scale general enquiry and ‘Off Market’ sales have sky rocketed. The Cluster Market we are most familiar with, extends from the Wester Suburbs right up the Nothern Coastal Strip, generally, west of the Mitchell Freeway. There has already been a further increase in enquiries just a few days out from the Election Result which suggest WA was waiting to see that a Liberal Government be returned, it has sparked even more confidence. The confidence box is ticked.

Perth Rental Market

This part of our market is truly impressive. It has been nothing short of an explosion in demand for rental properties in the last 4 months. This demand extends further than the sales market does in a geographical sense and is flowing through most suburbs and price points. This demand has lead to very positive rental yield increases for our investors, the majority are receiving rent increases at the point of Lease Renewal or re-leasing of the property. Inspection enquiries and home open numbers have rapidly increased and we have no reason to expect this will cease. This has been driven largely by migration from the East Coast but also Internationally. Primarily, the demographic of people have been professionals being offered positions in the WA Mining Sector and other Construction Companies. The demand box is ticked.

Jobs

Depending who you talk to, you will get a different opinion on how the job market is looking. In a generalised sense, there appears to be a very healthy demand for talent in the state. Construction in the residential sector has slowed, however, there are large scale commercial and retail construction projects underway or planned for commencement very soon. Talking to our sources in recruitment, they have been busier than they can remember with seriously strong demand from Mining and Construction companies, especially for executive talent. Our leasing and sales transactions agree with this as predominantly, tenants and buyers have been from this demographic. Job growth and confidence box is ticked.

East Coast Market Conditions

Our friends in the East are currently experiencing something they have not been used to for a very long time, which, unfortunately for us, has been previously our norm. Subdued market conditions and negative growth is the current status quo in many capital cities and locations. This comes directly off the back of astronomical growth which was sustained for years, probably something we experienced way back in 2006 and 2007. Though this is a negative experience for them, it brings opportunity to WA and, in a massive way. The market will turn to the West (which is currently happening) and see exactly what we see and are currently writing about, a perfect set of economic and market conditions that could see a very sustained period of prosperity and growth for WA, they will naturally place their money in a economy which poses the least risk, that is WA. We are likely to be the economic leader in the country in the foreseeable future. ‘WA is the best state’ box is ticked.

APRA – Loan Serviceability Changes

APRA (Australian Prudential Regulation Authority) is the regulator of the Financial Services Industry. Off the back of Financial Crisis’ and other questionable lending criteria by banks that was considered unconscionable, APRA decided to set down a serviceability buffer to what has become known as ‘responsible lending’ to ensure that consumers could not only afford their current interest rate, but, could also afford to repay the loan in the event that interest rates rose significantly. This benchmark was set too high, according to some, and potentially stifled the market of finance to purchase homes.

APRA have now announced they will likely reduce this buffer, allowing for more people to enter the property market that previously did not ‘service’ or allowing people to borrow more money than they could before to enable them to actually enter the property market. This decision has no doubt been triggered by the significant downturn of the East Coast Real Estate Markets and the hope this decision will ease the capital value losses and provide for a faster recover of these markets. Interest Rate cuts would in fact do very little to stimulate these markets as this buffer would prevent people borrowing money, no matter how low the rate went. So, while this is positive news for the East Coast, it is actually even better for WA.

We have been through our downturn in property values, our market is already heading back up the property cycle, this will only add to its positivity and will enable a better flow of funding from Banks into our property market. The easier Finance box has been ticked.

Reserve Bank – Interest Rate Forecast

Coupled with the above changes proposed from APRA, we currently have record low interest rates on offer from the banks, so, not only will money be more freely available, it will be cheaper than ever. And, if you look at some key factors, it will be cheap for a very sustained period. Bankwest just launched a 3.49% 3 year fixed rate – So what I hear you asking? Well, if a bank is prepared to offer a 3 year rate below the current variable rate, it means, they are factoring in further cuts to rates, they are not doing it to be nice guys, they are doing it to hedge their bets that if people stay on variable rates, they will likely not make as much money in the coming years from interest payments. This is a very large indicator that the reserve bank will move to finally pull the trigger on the rate cut that has been talked about for some time. The environment pretty much commands them too, the government and reserve bank need to stimulate the housing markets which are currently in free fall on the East Coast, relaxing serviceability and reducing rates are there only weapons to halt these losses. Can you see how WA is going to pick up another massive benefit from soft East Coast markets? This is comparable to getting a free kick 5 metres out from goal, directly in front. WA real estate is going to be kicking goals for the foreseeable future. The interest rates cut box is ticked.

Summary

Key indications as outlined above are hard to ignore, it is hard to place a negative spin on our current position (although, there are still people that do and will). Our state is in a growth phase again, it has been faced with challenges however, we have proved resilient throughout these challenges. So, now order has been restored, A stable and known government, great job prospects, cheaper and easier lending and no threats to property taxes, nothing can stop us now. 

For assistance with Sales, Property Management or Finance, Complete the form below and a Thought Leader will be in touch.