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Apr 11, 2024

Rental Market Tightens Further

This week, REIWA reported Perth’s residential rental vacancy rate dropped to a record low of 0.4 percent in March. A balanced market records vacancy rates at around 3.5 percent and in sharp contrast to early 2018 where vacancy rates were at 7.3 percent and over 12,000 properties were advertised for lease on reiwa.com. Today there are 1,963 advertised. Median Perth rents are at $649 per week with properties offered for lease below this figure in higher demand than those above the median. Accordingly, properties advertised at less than $1000 per week are leasing in about two weeks, whereas those at above this figure take about 21 days to rent. Core Logic shows Perth’s rental value is up 14 percent in the twelve months to March 2024, leading the nation amongst capital cities which averaged a 9.6 percent increase. Applied to Perth’s current median rent, a further 14 percent would see Perth rents hit $740 per week this time next year. The core of the problem is the shortage of housing supply at a time when migration levels into WA are rising contemporaneously with deteriorating construction approvals for new homes. Apartment approvals are at decade low levels falling to around 375-unit approvals last month against our 10-year average of about 725 units. Thankfully, investors are relatively active with 36 percent of mortgage demand in Western Australia coming from investors. This is up from the decade average of 24 percent and just 15 percent in 2019. The upside to this renewed investor enthusiasm is more rental stock coming into the market adding to supply, with the downside for first home buyers being investors buying stock that might otherwise have gone to them, which ultimately push up house prices. And prices are rising most in typical first home buyer regions. Remarkably, 8 of the top 10 local government regions across Australia for annual price growth are in Perth with the affordable regions of Armadale, Gosnells, Rockingham and Kwinana the top four performers up between 25.8 percent and 28.6 percent. Serpentine – Jarrahdale, Wanneroo, Cockburn and Mandurah all made the top ten up around 23 percent. In a balanced market, as house prices moderately rise, rents typically ease as first home buyers leave the rental market and enter home ownership. The opposite applies when interest rates rise and home prices abate, demand for rentals rise, pushing up rents. Today’s market is different. Perth is experiencing a renaissance of sorts after a prolonged period of negative or negligible growth from 2009 to 2019. During this decade, under-investment locally has caught us off guard with the speed of market recovery leaving us hopelessly short on supply during a time where construction costs remain a deterrent against meaningful and rapid increases in housing stock.

Apr 4, 2024

Perth Property Takes Lead

It doesn’t seem that long ago when Perth’s property values made us the cheapest major capital in the nation. At the time, it failed to make any sense that Hobart and Adelaide’s median house prices were significantly higher than ours given our low unemployment, high wages, lifestyle and economic strength. Two years ago, Perth’s median home value for the March quarter was reported by Core Logic as $525,800. The current median house value for Perth as reported this week sits at $703,502. In March 2022, we were the most affordable place in Australia to buy real estate with all the evidence pointing to Perth being on the brink of a property boom. Back then, buyers dabbling in the Hobart property market parted with $820,000 during the quarter, in our nation’s capital they paid $982,000 and in Brisbane $760,000. In Darwin, the median house price reached $583,000 and Adelaide put on a tremendous 7.1 percent spurt from the previous quarter to reach a median of $649,000. Melbournian buyers paid a median of $1,121,500 for a detached house and Sydney topped the list with an extraordinary median of $1,590,900 for the quarter. Perth’s median house price growth for the twelve months to March 2022 was 4.1 percent. Compared to the same twelve-month gains had in Hobart (31.5 percent), Brisbane (26.7 percent) and Adelaide (24.8 percent), Perth’s property price gains back then were comparatively modest. Perth’s annual house price growth is now a nation-leading 19.8 percent and showing no signs of slowing. Brisbane sits in second place at 15.9 percent, Adelaide 13.3 percent and Sydney (somewhat remarkably given their high median price) has put on a further 9.6 percent. Remaining capitals are still growing but by less than 3.5 percent. Usefully, Core Logic’s statistically references ‘series peaks’ demonstrating current market sentiment within the context of a ‘since -COVID’ cycle. Brisbane, Adelaide and Perth are the last remaining cities to be at peak since that time with Sydney, Melbourne and Hobart all having peaked in early 2022. It would appear Perth has some way to go with Adelaide’s median home value at $734,173, and Brisbane’s – the capital most typically value-aligned with Perth – at $817,564 with both still growing. I predict Melbourne will continue to constrict from its current $778,892 median value, Hobart’s anaemic growth at 0.3 percent could turn negative at the year progresses and Sydney’s growth pattern will stall. I punt Adelaide is close to peak growth and whilst remaining positive will only gain 5 to 8 percent over the next twelve months and Brisbane should continue its double-digit performance for the remainder of 2024. With Perth gaining 1.9 percent in March and 5.6 percent for the quarter, we could see gains of around 22 percent this year. Meanwhile, local rents are up 13.7 percent for houses and 15.9 percent for units. Housing affordability has deteriorated and will get worse before more supply arrives.

Mar 27, 2024

Love Thy Neighbour

In our secular society, Easter has lost some of its religious importance, but for Christians, it is the most important religious festival of the year. Christian values of love and forgiveness, whilst sometimes buried beneath layers of modern life, remain important foundations for a cohesive society. Our media is filled with stories that reveal the worst, rather than the best of us. A recent article I came across covered a boundary fence dispute between two warring neighbours. After about $10,000 in legal costs, neither side seemed any closer to a resolution with each party claiming the moral and legal high ground. Not much Easter spirit on display here. The exact detail of the boundary fence dispute is not revealed, but it is a shame that such a dispute has escalated to cost thousands of dollars and, more importantly, ruined a neighbourly relationship. Real estate agents are able to recount many stories involving neighbourly disputes and some sales occur due to neighbourly disharmony. Many neighbourly disagreements stem not from social disharmony, but from legal ones. The repair, replacement or alignment of boundary fences, Rights of Carriageway, the use of Common Property in Strata Schemes and Easements all carry certain obligations for those affected by them. Solving disputes with such matters is normally quite straight forward because there is either legislation that provides the framework for a solution or common law precedent that defines a prior legal decision. Sections 14 and 15 of the Dividing Fences Act WA 1961, for example provides detailed rules as to who pays for the cost of repairing a dividing boundary fence. Arguments may arise when one neighbour refuses to contribute but the Act provides a process for recovering monies due. Arguably more difficult is boundary alignment issues particularly in areas like Fremantle. I would wager that probably the majority of boundary fences of inner city housing in Fremantle are imperfectly aligned. In some cases, the boundary fence may be out by a significant margin. Such title encroachments can lead to the more complex legal matter of “adverse possession” under specific circumstances and whilst common in real estate vernacular, actual claims for adverse possession are relatively rare. Thankfully, neighbours prefer to live harmoniously and a misaligned boundary that has been in situ for decades in normal circumstances is often better left alone. The ability for neighbours to compromise over normally petty issues goes a long way to providing years of friendly “hellos” and a good supply of lemons from over the side fence.

Mar 20, 2024

Selling to Buy

Supply of homes to buy remain well below the long-term average. REIWA reports 3,971 listings available broken down into 2,230 houses, 1,129 units and 612 vacant lots. This time last year there were 7,262 listings. Meanwhile, sales volumes last week were 1,036 metro-wide up from an average of 615 weekly transactions in 2019. The lack of supply and listing choice is exacerbated by would-be sellers’ lack of confidence in coming to market, fearful of not being able to find a property that meets their needs once they’ve sold. And, given the high levels of demand, offering to buy ‘subject to sale’ of their own property is often trumped by buyers without such buying terms. Normally, sellers would rely on moving to a rental property for a short period in the event they’ve sold and yet to find an alternate home. However, the rental market is tighter than the sales market with median rents at $640 per week up from $360 per week in 2019. A mere 1,817 properties are for lease on reiwa.com and vacancy rates are at less than one percent. So, how do sellers overcome this dilemma? Firstly, be ready to come to market at short notice. Once you’ve chosen your preferred agent, present your home and arrange for professional photography. That way, your agent will be ready to go to market within a day or two should you successfully buy. Secondly, if you decide to sell and need to buy, structure the sale contract to give you sufficient time to buy an alternate home by negotiating a longer settlement period. Thirdly, consider a negotiating a ‘rent-back’ period with your buyer. This may not suit the buyer of course, but if an investor ends up buying your property, then this option comes into play. At settlement, sellers can remain in their home, pay rent to the buyer and have the luxury of only needing to move once upon finding their next home. Fourthly, introduce yourself to as may agents as possible when searching for your next home, give them your contact details and let them know what you’re looking for. This gives you more chance of securing a home ‘off-market’ whereby more flexible terms around settlement and the like are common. Finally, have confidence you’ll find a suitable home after you’ve sold. Sure, you’re not likely to be spoilt for choice and you may need to compete to buy, but there’s sufficient stock coming through the market to meet most family’s needs.

Mar 14, 2024

More Growth to Come

Perth’s housing values have increased more than 50 percent since the end of 2019 firmly putting an end to speculation that our run of price gains was purely due to the low interest rate, stimuli-fuelled COVID period. Core Logic reports Perth’s current median home value to be $687,004 up 52.9 percent since the bottom-of-the-market March 2020 price of $449,325. Current values eclipse the previous 2014 peak of $518,540. We’ve been witness to similar markets in the past. For example, back in 2006, Perth’s median house value rose a whopping 40.6 percent in twelve months thanks to the mining boom. Prices retreated relatively quickly after mining-related construction jobs ended and workers returned to whence they’d come. Back then, WA’s population gains went from +1,000 persons per week to -150 per week in a short period, hence the fairly spectacular downward adjustment in house values; demand simply fell away. There is a fundamental difference in Perth’s housing landscape this time around with population gains, low housing supply and relative affordability the three fundamental drivers of our market. These three factors are set to underpin positive house price growth for at least this year and into next with no predictable market shock on the horizon to bring this upward trajectory to a premature end. Considering each fundamental in turn, Perth’s house prices could gain a further 15 to 18 percent this year based on current trajectories. WA’s changes to population growth are at peak levels with around 22,000 new arrivals quarterly. Overseas migration is out-pacing interstate migration growth and with a housing shortage, the demand for more homes inevitably pushes up house prices. Meanwhile, REIWA continues to report low listing numbers currently at about 3,250, well below long term averages. The supply pipeline looks bleak too with current annual dwelling approvals 24 percent below the 10-year average for houses and an astonishing 74 percent below for units. Clearly, we are not going to be building enough homes for to cater for our population gains anytime soon. In fact, WA is leading the nation in terms of time taken to build new homes. Yet Perth remains one of the most affordable places in the nation to buy property with a year-to-date median house price of $718,500, well behind Sydney’s $1,395,804, Melbourne’s $942,671 and Brisbane’s $899,474. We have nudged past Hobart’s $696,508 in recent months. And the percentage of average household income to service current average mortgages in Perth is 29.8 percent, way more affordable than Sydney’s 58.1 percent. Interest rates are predicted to fall later this year as the broader economy slows. It’s foreseeable that such a move will add further fuel to Perth’s already hot property market.

Mar 7, 2024

Women in Property

The Real Estate Institute of Australia is now led by a CEO, President and Deputy President all of whom are women. Six of the eight state and territory Real Estate Institutes have women CEOs. Most of the high-profile property commentators we see in the media are women. Women represent the majority of real estate practitioners across Australia. Property Managers, Sales Agents, Agency Principals, CEO’s, Heads of Franchise groups, Marketers, Executive Assistants, Leasing Agents, Buyer Agents, every conceivable role, women are at the forefront of our industry. In terms of the daily work of real estate practitioner, women tend to develop a rapport with a property owner from a genuinely empathetic approach and can have a better appreciation of the stresses associated with selling or renting a home. In these early exchanges, women also tend to take time to listen to the homeowner and feedback advice that is in tune with their property needs. For a long time, real estate practitioners have had a reputation of unethical behaviours in search of a commission. Thankfully, for a variety of reasons, this has necessarily changed and agents now enjoy strong endorsement from the broader community for the work they do. However, the remnants of these biases float about from time-to-time with such negative perceptions usually focused on slick haired, gold chained blokes who seem prepared to sell their grandmothers for a quid. Such views are almost always born out of ignorance with such stereotypes fast becoming a thing of the past. Yet if any such stigma remains, it is interesting that it doesn’t appear to apply to women real estate practitioners. And perceptions are powerful motivators. There is a perception that women are more trustworthy, more honest and better organised than men; important qualities for a real estate agent. Women are often touted as having a superior eye for detail in design and decor than their male counterparts do too. It is International Women’s Day this week and is a celebration of the empowerment of women across society, including the work force. On average, we still pay women less than men to do the same job, but not in real estate where an increasing number of the top selling agents are women. So, in celebration of International Women’s Day, congratulations to all women involved in real estate, may they continue to grow the professionalism of our industry to the benefit of us all.

Feb 29, 2024

Sorry, Disconnected

Sometimes, governments make decisions that have unintended consequences that impact the practical ways certain industries work. Canberra’s latest effort to over-regulate comes in the form of changes to the Fair Work Act that formalise an employee’s ‘right to disconnect’. The changes effectively mean an employee may refuse to monitor, read or respond to contact from an employer outside of the employee’s normal working hours. As an employer, I think it’s perfectly reasonable for an employee to ignore my phone call after hours, and unless it was a serious emergency, I wouldn’t be calling them after hours anyway. But, do we really need to make a law for it? For the real estate industry, the implications could be significant. The business of real estate – sales or property management – doesn’t happen during usual business hours. The laws extend to an employee (sales representative or property manager) refusing to monitor, read or respond to contact from a third party if the contact relates to their work. This includes contact from vendors, tenants, buyers and lessors. The obvious issues for national companies operating in Western Australia have been neatly overlooked by east coasters with the 3-hour time difference in summer could mean an effective workday starting in midday in Melbourne and Sydney and ending here two hours later. The changes could result in lost business if employees refuse to take urgent calls on a critical matter, such as a live sale negotiation. And what about a matter concerning safety at a property where property or person is at risk where a worker is required to manage such emergencies? The new laws are set to become law in July this year. After which, a tenant, needing assistance to get into their home after losing their keys at 6 pm can expect no reply from their property manager. A vendor, - in theory - wanting to know how Saturday’s home open went, can’t demand a response from their sales agent until Monday morning. As a result, many real estate employees will ignore the new laws and carry on providing service to their clients, tenants and buyers outside normal working hours. It won’t be until something goes wrong with the employer / employee relationship that challenges might arise. Employers could find themselves in strife with the Fair Work Commission if a disgruntled employee claims they were expected to work outside normal business hours without the right to disconnect. Employees working from home further muddies the water given these arrangements enable a degree of flexibility that transcends normal work hours anyway. Time will tell what impacts come from these laws that seem to be an answer to a question no one ever really asked.

Feb 22, 2024

Who’s to Blame?

Housing affordability is one of the most significant challenges of the modern era. Both house prices and rents are at record highs in Perth and across much of the nation with Perth’s median house and rent prices at around $600,000 and $600 per week respectively and growing faster than any other major Australian capital. We understand that the reason for these rises is down to simple economics, higher demand and short supply means prices and rents rise. Governments have done a spectacular job at shifting blame away from their own housing policy failures to investors, banks, real estate agents, local councils and developers. Yet, each of these sectors play a pivotal role in delivering the existing housing stock. Governments, on the other hand, through their taxation and other policies actively undermine housing supply. Property investors, mostly families that own a single investment property, provide 90 percent of all residential rental homes across Australia, housing millions of tenants. They obtain a moderate benefit by claiming some of the expenses stemming from that investment against their taxable income via negative gearing. However, once positively geared, investors pay tax on the property’s income and pay Capital Gains Tax if they make a profit upon selling. Banks, whilst not the most popular corporate citizens, provide the funding for property through mortgages. Banks also provide the funding for developers. Us real estate agents provide the services that help investors navigate residential tenancy laws, help people into home ownership and enable property transactions. Local councils often stymie property developments, especially increased density but they also adapt their planning laws over time, enhancing our urban environments. Developers provide housing on mass, adding density to areas where people aspire to live, work and recreate. Part of the reason property values are rising is the cost of construction, both labour and materials, has risen by around 40 percent in 3 years with end property values for finished product not at levels sufficient to support the viability of the project. Developers work to a margin and if the project fails the feasibility test, it doesn’t get built. That’s why new emerging density areas such as those around the new Metronet hubs will take several years to be developed; the cost of delivering the project is higher than the combined value of the housing produced. These cost constraints are not limited to construction costs. Land tax, holding costs, public art levies, developer levies, rates, headworks fees and stamp duty are additional cost burdens representing around 25 percent of the total development costs. This is where government ought to step in. If they were serious about housing supply, government would support the groups that provide the housing. Instead, state and federal governments either fail to provide the housing themselves (public housing waiting lists are at record highs) or set policies (stamp duty, tenancy law changes and land tax for example) that actively discourage additional housing supply. If it isn’t government, who is to blame for the housing crisis?